First Citizens Acquires Deposits and Loans of Failed Silicon Valley Bank in Major Acquisition

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First Citizens Acquires Deposits and Loans of Failed Silicon Valley Bank in Major Acquisition

First Citizens Bancshares Inc., one of the largest regional banks in the US, has acquired significant portions of Silicon Valley Bank (SVB) following the latter's collapse. Under the deal, First Citizens is acquiring all of SVB's deposits, loans and branches, which will open under new ownership on Monday. The acquisition includes $119bn in deposits and around $72bn of SVB's loans at a $16.5bn discount. The remaining $90bn of SVB’s securities will remain in receivership. Overall, the FDIC estimates that the failure of SVB will cost a federal insurance fund around $20bn. The sale is a significant milestone in regulatory efforts to clean up after two of the largest bank failures in history.

The KBW Nasdaq Bank Index of commercial lenders is down 23% this year, compared to a 2.7% decline for the Dow Jones Industrial Average. Investors are watching First Republic Bank, a San Francisco-based lender that also has a large uninsured deposit base, which has been hit hard. Despite multiple efforts to boost its health, its shares have fallen 90% this year. Its bonds continue to trade at distressed levels, and the firm has hired advisers to consider its options.

Smaller US banks have experienced an outflow of deposits following a surge in inflows during the Covid-19 pandemic. These outflows are partly going to the largest US lenders, many of which are perceived as enjoying implicit government backing. The outflows also reflect the higher rates offered by money-market funds and short-term Treasury debt when the Federal Reserve has raised interest rates to quell high inflation. Silicon Valley Bank failed as its core business of banking venture-capital firms and their startups was bleeding funds. The firm had invested heavily in long-term bonds, whose value was hurt by the Fed’s interest-rate increases over the past year, meaning it could sell them only at a loss.

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