Most of the business of Silicon Valley Bank, a US tech lender that failed earlier this month, is being acquired by First Citizens Bank. Late on Sunday, the Federal Deposit Insurance Corporation (FDIC) announced that it had reached an agreement with First-Citizens Bank & Trust Company (FCIZP) to purchase all of SVB’s deposits and loans, which had been moved to a bridge bank by regulators following SVB’s failure.
On Monday, Seventeen former SVB locations will start conducting business as “Silicon Valley Bank, a division of First Citizens Bank.” Customers of SVB should stick with their current branch until First Citizens notifies them that systems have been converted to enable full service at its larger branch network, according to the FDIC.
The FDIC expects that the deal with First Citizens will alleviate the impact on a deposit insurance fund it accomplishes to pay for bank rescues. The fund is refilled by a levy on the entire banking industry rather than using funds provided by US taxpayers.
According to the FDIC, the sale will cost its deposit insurance fund about $20 billion. Along with that, the FDIC also suffered a $2.5 billion loss when it sold Signature Bank to New York Community Bancorp NYCB.N a week ago.
When the government took over Silicon Valley Bank, it was the 16th-largest bank in the nation. Since the 2008 financial crisis, its fall was the largest bank failure in the US.
After being seized by the F.D.I.C., the bank was acquired by Silicon Valley Bridge Bank, which included the transfer of all of the bank’s $56 billion in deposits as well as the purchase of approximately $72 billion in loans at a discount of $16.5 billion. Amounting to $90 billion in securities and other assets owned by Silicon Valley Bank were excluded from the transaction and remained under the F.D.I.C.’s control.
First Citizens Bank won’t make an upfront payment for the transaction. However, it claimed that it had given the FDIC equity appreciation rights in its stock that may be worth up to $500 million, which is a tiny portion of what Silicon Valley Bank was originally valued at before it went under.
These rights may be used by the FDIC from March 27 to April 14. The value of First Citizens’ stock will determine how much cash it gets. In pre-market trading on Monday $874.75, shares of First Citizens increased by 50%.