SVB
Failed SVB to be taken over by First Citizens
March 27, 2023
North Carolina lender First Citizens Bank has agreed to take over most of Silicon Valley Bank, assuming $238 billion worth of assets, deposits and loans held by the entity created following the bank’s collapse.
As part of the transaction, the Federal Deposit Insurance Corporation said around $72 billion of assets are being bought at a discount of $16.5 billion. Around $90 billion in securities and assets will remain in receivership to be sold by FDIC.
The regulator will also receive equity appreciation rights, a form of deferred compensation linked to First Citizen’s share price, which could be worth up to $500 million. FDIC and the bank will share in losses and potential recoveries on commercial loans made by SVB.
The FDIC estimates that the cost of SVB’s failure to its deposit insurance fund, which is paid for by member banks, will be around $20 billion.
SVB’s clients will automatically become First Citizen customers, news that will offer relief to startups and VCs. In a statement, First Citizens chairman and CEO Frank Holding said that the bank is "committed to building on and preserving the strong relationships that legacy SVB's global fund banking business has with private equity and venture capital firms".
The deal comes a week after troubled financial institution Signature Bank, which was also closed by regulators following mass withdrawals, was acquired by Flagstar Bank. Earlier in March, HSBC bought SVB’s UK arm for £1 (around $1.23).
The collapse of SVB sent shockwaves through global financial systems, spreading fear of contagion, particularly for regional banks. SVB’s acquisition will likely have a calming effect on banking stocks which have fallen significantly in recent months. Europe’s Stoxx 600 Banks index was up 0.73% following the news after sharp declines in the last month.
But SVB’s collapse will have a lasting impact on both global financial systems and VC. As the leading lender and banking partner for US startups, SVB’s failure will put pressure on the VC market which is already facing a downturn in dealmaking in fundraising amid a challenging economic environment.
Featured image by NurPhoto/Getty Images
As part of the transaction, the Federal Deposit Insurance Corporation said around $72 billion of assets are being bought at a discount of $16.5 billion. Around $90 billion in securities and assets will remain in receivership to be sold by FDIC.
The regulator will also receive equity appreciation rights, a form of deferred compensation linked to First Citizen’s share price, which could be worth up to $500 million. FDIC and the bank will share in losses and potential recoveries on commercial loans made by SVB.
The FDIC estimates that the cost of SVB’s failure to its deposit insurance fund, which is paid for by member banks, will be around $20 billion.
SVB’s clients will automatically become First Citizen customers, news that will offer relief to startups and VCs. In a statement, First Citizens chairman and CEO Frank Holding said that the bank is "committed to building on and preserving the strong relationships that legacy SVB's global fund banking business has with private equity and venture capital firms".
The deal comes a week after troubled financial institution Signature Bank, which was also closed by regulators following mass withdrawals, was acquired by Flagstar Bank. Earlier in March, HSBC bought SVB’s UK arm for £1 (around $1.23).
SVB collapse and the private market fallout: Continuing coverage
The collapse of SVB sent shockwaves through global financial systems, spreading fear of contagion, particularly for regional banks. SVB’s acquisition will likely have a calming effect on banking stocks which have fallen significantly in recent months. Europe’s Stoxx 600 Banks index was up 0.73% following the news after sharp declines in the last month.
But SVB’s collapse will have a lasting impact on both global financial systems and VC. As the leading lender and banking partner for US startups, SVB’s failure will put pressure on the VC market which is already facing a downturn in dealmaking in fundraising amid a challenging economic environment.
Featured image by NurPhoto/Getty Images
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