First Citizens to acquire failed Silicon Valley Bank

First Citizens has agreed to buy Silicon Valley Bank, the California lender that served as lifeblood to thousands of startups before its collapse sent shockwaves through the financial sector, the U.S. Federal Deposit Insurance Corporation said on Monday. The failure of Silicon Valley Bank is estimated to incur a loss of about $20 billion to the Deposit Insurance Fund, the regulator said.

The deal includes the purchase of about $72 billion assets of Silicon Valley Bank at a discount of $16.5 billion. About $90 billion in securities and other assets of the California-based lenders will remain “in receivership of disposition” by the FDIC.

The announcement comes weeks after the FDIC seized control of Silicon Valley Bank after a run on deposits made the lender insolvent. The 17 former branches of Silicon Valley Bank will open as First Citizens Bank on Monday, the FDIC said.

The collapse of Silicon Valley bank rattled the banking industry, especially regional banks, prompting the FDIC to move to transfer all SVB deposits into a new “bridge bank” to protect depositors. Shortly afterwards, the Federal Reserve provided a relief to the depositors of the lender by ensuring they were fully protect. Depositors gained access to all of their money starting March 13.

“In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million,” the FDIC said in a statement.

Before the collapse, Silicon Valley Bank was the 16th largest bank in the U.S. Its abrupt meltdown was the largest bank failure in the U.S. since the 2008 financial crisis. The Monday deal follows a similar move at Signature Bank a week ago, which is being acquired by Flagstar.

“First Citizens has a proud history of growing organically and through strategic acquisitions that build our core capabilities in a careful and deliberate manner,” said Frank B. Holding, Jr., chairman and CEO of First Citizens, in a statement.

Holding Jr, whose grandfather started the North Carolina-based lender, has overseen nearly two dozen acquisitions since taking over the top role in 2008. Last year, First Citizens acquired CIT, a lender to mid-sized businesses, for $2 billion.

The acquisition of Silicon Valley Bank will strengthen First Bank’s ability to serve firms in private equity, venture capital and technology sectors, he said.

“Specifically, we are 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. This transaction also will accelerate our expansion in California and introduce wealth capabilities in the Northeast. SVB’s Private Wealth business is a natural fit for our high-touch and sophisticated level of high-net-worth customer service and approach,” he added.

The failure of Silicon Valley Bank has exposed many of the weaknesses of the banks and has led to scrutiny of the Fed’s oversight. Even as Silicon Valley Bank was unusually vulnerable due to its business model — serving largely tech startups and venture investors that deposited tens of billions of dollars during the peak funding cycle in 2021 and have been struggling to raise new capital since and quickly ploughing through their savings — its collapse is inviting many to call for a change in how lenders value their assets in financial statements.

The Bank of England said last week that it had warned the U.S. regulators over the growing risks at Silicon Valley Bank long before its collapse.