First Citizens Bank acquires SVB

On March 27, First Citizens Bank agreed with Federal Deposit Insurance Corporation (FDIC) to purchase Silicon Valley Bank (SVB) at a discount price of $16.5 billion, assuming SVB’s assets of $110 billion, which consists of $56 billion in deposit and $72 billion in loans.

The purchase led to the reopening of SVB’s 17 branches, but now operating as divisions of First Citizens Bank. According to First Citizens Bank, there will be no immediate change to customer’s current accounts. Customers should be able to write checks, cards, and make loan payments as before the failure of SVB.

Given concerns regarding the safety of client deposits, Peter Bristow, the president of First Citizens Bank, stated that First Citizens Bank’s total liquidity is able to back 175 percent of current uninsured deposits at SVB, in addition to $35 billion cash guaranteed by FDIC insurance.

In addition, the acquisition only slightly transferred risks that have previously been associated with SVB’s failure to First Citizens Bank. FDIC and First Citizens Bank entered a loss-share agreement, in which FDIC promised to cover some potential loss occurring during the recovery of SVB. The deal also does not include roughly $90 billion worth of SVB securities and other assets, which are still under FDIC’s management. In facing drastic volatility in the financial markets, this additional set of assets could bring detrimental liquidity and other types of risks to First Citizens Bank.

The market has responded positively to this purchase, reflected by 45 percent surge on March 27, and the steady growth in stock price since then. Acquiring SVB brought a tailwind to the bank since its dramatic fall in stock price at the beginning of March.

The absorption of SVB can be a strategic choice for First Citizens Bank to expand its client base into the West coast and the technology ventures community, as this deal allowed them to gain the former technology venture clients of SVB. However, whether Silicon Valley technology business operators and venture capital investors will restore their trust in First Citizens Bank is still uncertain. Many could turn to more secured, “too big to fall,” national banks to seek for better deposit security during this time of instability in the financial markets, instead of more convenient regional banks, such as the former SVB.