First Citizens to Acquire Failed Silicon Valley Bank – According to the U.S. Federal Deposit Insurance Corporation’s announcement on Monday, First Citizens has agreed to acquire Silicon Valley Bank. The California-based bank was a crucial source of funding for numerous startups, but its collapse had a significant impact on the financial industry.
The regulator estimates that the failure of Silicon Valley Bank will result in a loss of approximately $20 billion for the Deposit Insurance Fund. As part of the agreement, First Citizens will acquire approximately $72 billion worth of assets from Silicon Valley Bank at a discounted price of $16.5 billion.
Meanwhile, the FDIC will maintain control over securities and other assets worth around $90 billion from the California-based bank, which will either be sold or managed in receivership. Several weeks following the FDIC’s takeover of Silicon Valley Bank due to the bank’s insolvency caused by a sudden withdrawal of deposits, an announcement has been made regarding its acquisition by First Citizens.
The regulator has stated that the 17 branches formerly belonging to Silicon Valley Bank will commence operating as First Citizens Bank from the start of the week. Silicon Valley Bank’s collapse had a significant impact on the banking industry, particularly regional banks, which prompted the FDIC to take action to safeguard depositors by transferring all deposits from SVB to a new “bridge bank.”
The Federal Reserve subsequently offered relief to the lender’s depositors by assuring them of complete protection. Depositors were granted access to their funds from March 13 onwards. “In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million,” the FDIC said in a statement.
Silicon Valley Bank was ranked 16th among the largest banks in the United States prior to its collapse. The sudden failure of the bank caused significant disruption for thousands of startup founders, who were forced to scramble to maintain their business operations and payroll.
This event was the largest bank failure in the U.S. since the 2008 financial crisis. The recent acquisition of Signature Bank by Flagstar serves as a precedent to the Monday deal. “First Citizens has a proud history of growing organically and through strategic acquisitions that build our core capabilities in a careful and deliberate manner,” said Frank B. Holding, Jr., chairman and CEO of First Citizens, in a statement.
Since taking over as the head of the North Carolina-based lender in 2008, Holding Jr, whose grandfather founded the bank, has overseen nearly 20 acquisitions. Last year, First Citizens purchased CIT, a lender that caters to mid-sized businesses, for $2 billion. Holding Jr has stated that the acquisition of Silicon Valley Bank will enhance First Citizens’ capacity to serve firms in the private equity, venture capital, and technology industries.
“Specifically, 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.” “This transaction also will accelerate our expansion in California and introduce wealth capabilities in the Northeast.”
“SVB’s Private Wealth business is a natural fit for our high-touch and sophisticated level of high-net-worth customer service and approach,” he added. Silicon Valley Bank’s failure has exposed numerous flaws within the banking industry, prompting increased scrutiny of the Fed’s regulatory processes.
While the bank’s business model, which primarily involved serving tech startups and venture investors who deposited billions of dollars during the peak funding cycle of 2021, made it particularly vulnerable, its collapse has led to calls for a reassessment of how banks value their assets in financial statements. The Bank of England recently disclosed that it had alerted U.S. regulators to the mounting risks associated with Silicon Valley Bank well in advance of its collapse.