Washington (TIP)- U.S. regulators said they would backstop a deal for regional lender First Citizens BancShares to acquire failed Silicon Valley Bank, triggering an estimated $20 billion hit to a government-run insurance fund. The deal comes after the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank on March 10 after depositors rushed to pull out their money in a bank run that also brought down Signature Bank and wiped out more than half the market value of several other U.S. regional lenders.
The deal was “momentous” for First Citizens, CEO Frank Holding told investors on a conference call Monday. “We believe this transaction is a great outcome for depositors.”
The Raleigh, North Carolina-based lender has completed 21 such government-assisted deals, including 14 since 2009 when CEO Holding was made chairman, according to a Piper Sandler note on Monday. The FDIC fund does not take U.S. taxpayer money and is instead replenished by a levy on member banks.
“The FDIC’s sale of SVB helps show business can go on as usual for the banking industry,” a team of Wells Fargo analysts led by Mike Mayo said in a note on Monday.
First Citizens will not pay cash upfront for the deal. Instead, it said it granted equity appreciation rights in its stock to the FDIC that could be worth up to $500 million — a fraction of what Silicon Valley Bank was worth before it failed.
The FDIC will be able to exercise these rights between March 27 and April 14. How much cash it receives will depend on the value of First Citizens’ stock.
First Citizens shares jumped 50%.
First Citizens will assume Silicon Valley Bank’s assets of $110 billion, deposits of $56 billion and loans of $72 billion as part of the deal.
The FDIC said the $72-billion purchase of SVB’s assets came at a discount of $16.5 billion.
SVB Private, which the FDIC was trying last week to sell separately and that Citizens Financial Corp had expressed interest in, was acquired by First Citizens as well.
First Citizens said SVB’s Private wealth business “is a natural fit for our high-touch and sophisticated level of high-net-worth customer service and approach.”
LINE OF CREDIT
First Citizens will also receive a line of credit from the FDIC for contingent liquidity purposes and will have an agreement with the regulator to share some losses on commercial loans to protect it against potential credit losses.
“First Citizens Bank’s acquisition of the SVB loan book and deposits does not add much to solve the number one issue that the U.S. banking system is now facing: deposits leaving smaller banks for larger banks or money market funds,” said Redmond Wong, greater China market strategist at Saxo Markets.
Based in Santa Clara, Silicon Valley Bank was the 16th biggest lender in the U.S. at the end of last year, with about $209 billion in assets.
SVB’s collapse triggered the worst banking crisis since 2008, pummelling banking stocks globally. Shares in European lenders fell sharply, led by Germany’s Deutsche Bank , raising concern among authorities about a potential credit crunch. Source: Reuters
Tag: Silicon Valley Bank
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First Citizens acquires Silicon Valley Bank
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US banking crisis: Lapses in regulatory oversight led to the collapse
The US authorities are scrambling to protect depositors’ money after the back-to-back collapse of Silicon Valley Bank (SVB), Silvergate Capital Corporation and Signature Bank, which were major lenders to the crypto sector and tech startups. In a desperate bid to affirm the stability and credibility of the American banking system, the Joe Biden administration has granted SVB customers access to their money. Depositors of Signature Bank, which was closed on Sunday by the New York state financial regulator, have been promised compensation ‘at no loss to the taxpayer’. Silvergate has said that it would be winding down operations and liquidating its bank.
SVB was among the top 20 American commercial banks till last year. It is the largest bank to be shut in the US since the 2008 financial meltdown, whose prime casualties included Washington Mutual and the Lehman Brothers’ global investment bank. A link between them has surfaced: SVB’s Chief Administrative Officer Joseph Gentile had worked with Lehman Brothers as Chief Financial Officer until he quit in 2007, a year before the 158-year-old giant went bankrupt, nearly bringing down the global financial system.
President Biden has stated that he is ‘firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight of larger banks so that we are not in this position again.’ It is evident that lapses in regulation — coupled with an aggressive, risk-prone monetary policy aimed at taming inflation — brought things to such a pass. The writing was on the wall, but it was ignored. Short-seller William C Martin, former manager of a now-closed hedge fund, had already warned in January that SVB would blow up sooner rather than later. The fiasco holds a bitter lesson for US regulators and stakeholders: set your own house in order before losing sleep over smaller yet fast-growing economies. The key takeaway for India, which was rocked by the Punjab National Bank scam in 2018, is that no one can afford to ignore the warning signs. The regulatory system needs to be proactive rather than reactive to prevent a financial bloodbath and ensure the safety of people’s deposits.
(Tribune, India)
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Silicon Valley Bank collapse sends shockwaves across the banking industry
- SVB is one of the largest lenders to fail since the 2008 Global Financial Crisis
SANTA CLARA, CA (TIP): The collapse on Friday, March 10 of Silicon Valley Bank that catered to many of the world’s most powerful tech investors sent shockwaves across the banking industry, hammering shares of other smaller and regional lenders. SVB is one of the largest lenders to fail since the 2008 Global Financial Crisis.
California’s banking regulators shut down Silicon Valley Bank and put it into receivership under the Federal Deposit Insurance Corp. (FDIC). That effectively gives control of the bank to the FDIC, which created a new entity to oversee it. Regulators announced the takeover after what was effectively a run on the bank. Depositors rushed to withdraw their money amid fears SVB wouldn’t be able to meet redemption requests.
Although it was not in the same league as, say, Goldman Sachs or J.P. Morgan Chase, Silicon Valley Bank, or SVB, punched above its weight during its 40-year history.
Based in Santa Clara, Calif., its clients included venture capital firms and startups, and it became a big player in the tech sector, successfully competing with bigger-name banks.
“They really developed a niche that was the envy of the banking space,” says Jared Shaw, a senior analyst at Wells Fargo. “They are able to provide all the products and services any of these sophisticated technology companies, as well as these sophisticated venture capital and private equity funds, would need.”
Silicon Valley’s business boomed as tech companies did well during the pandemic. That filled the lender’s coffers, and SVB had about $174 billion in deposits. But in recent months, many of Silicon Valley Bank’s clients had been withdrawing money at a time when the tech sector as a whole has been suffering.
SVB said earlier this week, that in order to make good on those withdrawals, it had to sell part of its bond holdings at a steep loss of $1.8 billion. Bonds and stocks have been hammered since last year, as the Federal Reserve has raised interest rates aggressively, and SVB also noted it wanted to pare down its bond portfolio to avoid further losses. But that announcement spooked the bank’s clients, who got worried about SVB’s viability, and then proceeded to withdraw even more money from the bank — a textbook definition of a bank run.
That led to a major slump in SVB’s shares. The bank’s stock price fell by 60% on Thursday, and as its share price continued to sink overnight.
Trading was halted on Friday morning, and by midday, SVB had been taken over by the FDIC.
Though the problems appear to be isolated at SVB, the run on the bank sparked concerns about the banking sector as a whole. On Thursday, shares of all kinds of lenders, including the big banks, sagged. J.P. Morgan, Wells Fargo, and Bank of America were all down about 5%.
Investors feared that other lenders, especially smaller and regional ones, would suffer a similar surge in withdrawals and would struggle to meet the redemptions.
The troubles at SVB come as Wall Street had already been on edge. Earlier this week, Silvergate, a California-based bank that caters to the cryptocurrency industry, announced plans to unwind its operations.
Yet by Friday, fears about the health of the broader banking sector had eased, even before the FDIC took over SVB.
Bank analysts at Morgan Stanley said in a note “the funding pressures facing” Silicon Valley Bank “are highly idiosyncratic and should not be viewed as a read-across to other regional banks.”
“We want to be very clear here,” they wrote. “We do not believe there is a liquidity crunch facing the banking industry.” Wells Fargo analyst Shaw also said other banks were hit by panic selling.
“It’s really just a fear that has gripped the market, and is sort of self-perpetuating at this point,” says Shaw.
The entity created by federal regulators to oversee SVB, the Deposit Insurance National Bank of Santa Clara, has quite a few things to sort out. The FDIC said those with insured deposits with SVB, typically up to $250,000, would be able to access their money by no later than Monday.
The fate of those with deposits at SVB that exceed insurance limits is less certain, however, with the FDIC saying they will receive an “advance dividend” for a portion of their funds along with “certificates” accounting for their uninsured funds. The regulator did not spell out what that would entail for these uninsured depositors.
Investors will also continue to monitor for any further impact on other banks. The Treasury Department said Secretary Janet Yellen discussed the situation at a meeting she convened with financial regulators.
“Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event,” the statement said.
(With inputs from agencies)