On March 10, 2023, Silicon Valley Bank (SVB) was acquired by First Citizens Bank & Trust Company, based in Raleigh, North Carolina, following an FDIC-mediated deal. The acquisition included all deposits and loans from SVB, as well as the 17 branches that the troubled California bank owned across the United States. As of March 10, 2023, SVB had $167 billion in total assets and approximately $119 billion in total deposits. First Citizens Bank purchased $72 billion worth of SVB’s assets at a discount of $16.5 billion, while approximately $90 billion in securities and other assets remained in receivership for disposition by the FDIC. As part of the deal, the FDIC obtained equity appreciation rights in First Citizens Bancshares, Inc. with a value cap of $500 million.
Before its acquisition by First Citizens, Valley National Bancorp showed interest in SVB, but First Citizens’ CEO, Frank Holding Junior, stated that his company remains committed to supporting venture capital (VC) firms. “We are committed to building on and preserving the strong relationships that legacy SVB’s global fund banking business has with private equity and venture capital firms,” the First Citizens’ CEO said in a statement.
The cost of SVB’s failure to its Deposit Insurance Fund (DIF) was estimated at approximately $20 billion, making it one of the most expensive failures in US history. The FDIC had yet to determine the exact cost, which will only be known once the FDIC ends its receivership relationship. This cost estimate includes an assessment on banks, which is how the DIF is financed. Indymac’s failure in 2008 cost $12.4 billion and consumed 14% of the insurance fund. When compared to the estimated cost to DIF of Signature Bank’s failure of around $2.5 billion, SVB’s losses are significantly greater.
The SVB acquisition has given the banking sector a brief intermission, according to Susannah Streeter, head of money and markets at Hargreaves Lansdown. Despite this, there is still fear of unrealized losses troubling the US banking system. “The big worry is that they are sitting on big piles of unrealised losses, not just in their bond portfolios, but on other assets which have been battered by the storm of high-interest rates,” Streeter noted. The commercial real estate sector, in particular, could be the next weakest link, as debt matures over the next few years and will need to be refinanced in a market where rates have soared, while valuations have fallen, and there is a lot less money sloshing around.
Overall, the FDIC-mediated SVB acquisition marks a significant milestone in US banking history, with First Citizens Bank taking over assets worth $72 billion at a discount of $16.5 billion. While it has brought some respite to the beleaguered banking sector, the impact of SVB’s failure on the DIF and the wider economy remains to be seen.
