Editor TLN
The FDIC hopes that the operation with First Citizens will minimize the impact on the deposit guarantee fund that it manages to finance the bailout of banks. The fund is fed not by US taxpayers’ money, but by a levy on the entire banking sector.
The sale will cost the FDIC’s deposit insurance fund $20 billion, according to the agency. This amount adds to the $2.5 billion the FDIC lost when it sold Signature Bank to New York Community Bancorp a week ago.
First Citizens will not pay cash for the transaction. Instead, it has granted the FDIC share appreciation rights of up to $500 million, a fraction of what Silicon Valley Bank was worth before its bankruptcy.
The FDIC will be able to exercise these rights between March 27 and April 14. The amount of cash you receive will depend on the value of First Citizens stock. First Citizens shares were up 50% in premarket trading Monday at $874.75.
First Citizens, which describes itself as the bank that has completed the most FDIC-sponsored transactions since 2009, said the combined company would be resilient with a diversified loan portfolio and deposit base.
Under the deal, subsidiary First-Citizens Bank & Trust Company will take over $110 billion worth of SVB assets, $56 billion worth of deposits and $72 billion worth of loans.
“Prudent risk management will continue to protect clients and shareholders in all economic cycles and market conditions,” the statement said.
First Citizens will also receive an FDIC line of credit for contingent liquidity purposes and will have an agreement with the regulator to share some losses on commercial loans to provide further protection against potential credit losses.
Analysts see the move as positive for financial stability and the venture capital industry, but only up to a point.
“I believe that First Citizens Bank’s acquisition of SVB’s deposit and loan portfolio does not do much to solve the main problem facing the US banking system today: deposits being abandoned by smaller banks in favor of banks or money market funds,” said Redmond Wong, China market strategist at Saxo Markets.
SVB was the biggest bank to fail since the 2008 financial crisis, when California regulators shuttered the bank on March 10, triggering massive market turmoil and heightening tensions across the global banking sector.
The crisis of confidence that triggered its collapse also bankrupted Signature Bank, whose deposits and loans will be taken over by a unit of New York Community Bancorp, and forced the second largest Swiss bank, Credit Suisse CSGN.S, to accept a bailout for part of rival UBS
With information from Reuters
