Bankruptcy of startups sparked warning about US banking system; buyer will receive credit to guarantee liquidity
First Citizens BancShares announced that it will buy the deposits and loans of SVB (Silicon Valley Bank) and other assets held by the FDIC (Federal Deposit Insurance Corporation, a US federal agency that guarantees bank deposits). The information was released on Monday (27.Mar.2023) in a statement. Here is the full text, in English (321 KB).
The bank said the purchase was structured to preserve its strong financial position and that the merger will maintain the institutions’ diversified loan portfolio and deposit base.
“The transaction brings together complementary strengths of both banks’ commercial banking and private banking capabilities and leverages common platforms, vendor partners and technologies.”, reads in the text.
On March 10, US authorities shut down the activities of the SVB, known for funding startups –companies that seek innovative solutions and have high growth potential.
The bankruptcy took place after the bank reported, 2 days earlier, that it had liquidated US$ 21 billion in bonds with US$ 1.8 billion in loss in the 1st quarter. In addition, it planned to sell $1.7 billion worth of shares.
The result was a classic customer scramble to get money out of the bank. It turns out that part of the withdrawn amount was invested in other, less liquid assets.
With the purchase, First Citizens [principal subsidiária do First Citizens BancShares] will take on $110 billion in assets, $56 billion in deposits and $72 billion in loans from SVB. The institution will receive an FDIC credit to guarantee its liquidity.
According to the statement, the bank entered into a loss-sharing agreement with the deposit guarantee agency to prevent possible credit reductions.
“O 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”, informed the financial institution.
“Prudent risk management approach will continue to protect clients and shareholders through all economic cycles and market conditions”, he completed.
Founded in 1898, First Citizens is a North Carolina-based commercial bank. It is claimed to have more than $219 billion in assets and is one of the top 20 financial institutions in the US.
WHAT THE FDIC SAYS
In a separate note, the FDIC – which took over SVB after the bankruptcy – said it had been granted appreciation rights to First Citizens shares worth a potential up to $500 million.
He also said that about $90 billion in securities and other assets will remain in the custody of the FDIC. Here is the full text, in English (72 KB).
“The FDIC estimates the cost of Silicon Valley Bank’s failure to its Deposit Insurance Fund to be approximately $20 billion. The exact cost will be determined when the FDIC closes receivership.”, he stated.
As of this Monday (27.Mar.2023), the 17 branches of SVB will operate as First Citizens Bank.
“Os depositantes do Silicon Valley Bridge Bank National Association [banco de transição criado pelo FDIC] will automatically become depositors with First Citizens Bank & Trust Company. All deposits taken by First Citizens Bank & Trust Company will continue to be insured by the FDIC up to the insurance limit.”, reported the US agency.