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First Citizens grows 100% with SVB deal, FDIC may lose $20b, gain $500m upside

 
 

In a deal with the FDIC, First Citizens is buying the following from Silicon Valley Bank: $110 billion in assets, $56 billion in deposits, $72 billion of loans. First Citizens Bank reported year-end 2022 assets of $109 billion, and in today’s SVB announcement reported $219 billion in assets. This is a 100% asset growth rate. The FDIC’s deposit insurance fund paid for by member banks may lose $20 billion, and the FDIC may gain $500 million with First Citizens stock. Below are details on what’s being acquired, how the FDIC and taxpayers fare, and what to do if you had SVB deposits or loans.

WHAT PARTS OF SVB IS FIRST CITIZENS BUYING?

Per the First Citizens press release, here’s what they’re buying. Silicon Valley Bridge Bank refers to the entity the FDIC created when they seized Silicon Valley Bank. The bridge bank was created to give FDIC time to find a buyer.

First Citizens Bank will buy Silicon Valley Bridge Bank assets of $110 billion, deposits of $56 billion and loans of $72 billion, based on latest information provided by the FDIC.

First Citizens Bank will receive an available line of credit from the FDIC for contingent liquidity purposes.

First Citizens Bank has entered into a loss share agreement with the FDIC to provide further downside protection against potential credit losses.

First Citizens Bank will not acquire any of the assets, common stock, preferred stock, debt or assume any other obligations of SVB Financial Group, the former holding company of Silicon Valley Bank (SVB).

First Citizens had $109.2 billion in assets and $89.4 billion in deposits as of December 31, 2022.

First Citizens reported $219 billion in assets today, up 100% from $109.2 billion at year-end 2022.

WHAT DOES FDIC LOSE/GAIN IN FIRST CITIZENS SVB DEAL?

Per the FDIC press release, here’s more detail on what First Citizens is buying, how FDIC is helping the deal, and what they get out of it.

As of March 10, 2023, SVB had approximately $167 billion in total assets and about $119 billion in total deposits.

Today’s transaction included the purchase of about $72 billion of assets at a discount of $16.5 billion.

Approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC.

FDIC received equity appreciation rights in First Citizens common stock with a potential value of up to $500 million.

The FDIC and First Citizens entered into a loss–share transaction on the commercial loans it purchased of the former Silicon Valley Bridge Bank.

The FDIC and First Citizens Bank will share in the losses and potential recoveries on the loans covered by the loss–share agreement.

The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector.

The transaction is also expected to minimize disruptions for loan customers.

First Citizens will assume all loan–related Qualified Financial Contracts.

The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion.

The Financial Times reported that this figure “would make SVB the most costly failure in the history of the U.S. insurance deposit fund, which was started 1933, eclipsing the $12 billion loss it took on the failure of IndyMac at the start of the financial crisis.”

The FDIC said the exact cost will be determined when the FDIC terminates the receivership.

The FDIC created Silicon Valley Bridge Bank following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation.

WHAT DO SVB LOAN & DEPOSIT CUSTOMERS DO NOW?

Here’s what the FDIC and First Citizens said about continuing SVB operations.

Depositors of Silicon Valley Bridge Bank, National Association, will automatically become depositors of First–Citizens Bank & Trust Company.

All deposits assumed by First–Citizens Bank & Trust Company will continue to be insured by the FDIC up to the insurance limit.

The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023.

Customers of Silicon Valley Bridge Bank should continue to use their current branch until they receive notice from First Citizens Bank that systems conversions have been completed to allow full–service banking at all of its other branch locations.

The last link below has more information for SVB borrowers, depositors, and investors.

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Reference:

First Citizens buys $110b assets, $56b deposits, $72b loans from SVB (Press Release)

First Citizens to buy all deposits & loans from SVB (FDIC Press release)

What to do if you have SVB loan or deposits (FDIC)

First Citizens investor presentation on buying SVB from FDIC

 

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