First Citizens BancShares Acquires Silicon Valley Bank Assets at a Discount

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First Citizens BancShares recently bought $72 billion worth of assets from Silicon Valley Bank at a 23% discount, or $16.5 billion. This move doubles First Citizens’ assets but will cost the FDIC’s Deposit Insurance Fund around $20 billion, the most significant loss in its history.

The FDIC must handle $90 billion in SVB assets and has agreed to share losses on commercial loans acquired by First Citizens for five years. They’ve also provided a $70 billion credit line in case of deposit outflows. In return, the FDIC will get equity rights worth up to $500 million in the bank.

The sale doesn’t include investment securities, leaving the FDIC with SVB’s devalued bonds. First Citizens also receives a five-year, $35 billion loan at a low 3.5% interest rate to fund the deal.

Former Federal Reserve examiner Mark Williams believes the deal may be due to limited interest in SVB assets. While the $70 billion FDIC credit line offers security, bank managers recognize the risk of deposit flight during the merger. However, the bank’s CFO thinks some SVB clients may return for stability.

This acquisition is another example of First Citizens buying distressed banks at a discount. After the transaction, the bank’s assets exceed $200 billion, with over 550 branches across 23 states.