In a move that has sent ripples through the financial sector, First Citizens has agreed to acquire Silicon Valley Bank after the latter’s collapse. The California-based lender had served thousands of start-ups and its failure is expected to result in a $20 billion loss for the Deposit Insurance Fund. The deal will see First Citizens buying approximately $72 billion of Silicon Valley Bank’s assets at a discount of $16.5 billion. However, the FDIC will retain securities and other assets worth $90 billion.
The acquisition comes after the FDIC took over the control of Silicon Valley Bank following a run on deposits, which made the lender insolvent. The branches of the failed bank will reopen as First Citizens Bank. The move has been welcomed by the CEO of First Citizens, who said that the acquisition would strengthen the bank’s ability to serve private equity, venture capital, and technology firms.
Before its collapse, Silicon Valley Bank was the 16th largest bank in the US. Its sudden failure was the largest bank failure in the US since the 2008 financial crisis and has led to increased scrutiny of the Fed’s oversight. While the bank was particularly vulnerable due to its business model, which served mostly tech start-ups and venture investors that deposited tens of billions of dollars during the peak funding cycle in 2021, its collapse has prompted calls for a change in how lenders value their assets in financial statements.
The FDIC will receive equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million. First Citizens has a history of growing through strategic acquisitions that build its core capabilities in a careful and deliberate manner. The acquisition of Silicon Valley Bank will also accelerate the bank’s expansion in California and introduce wealth capabilities in the Northeast.
In a similar move last week, Signature Bank was acquired by Flagstar. The collapse of Silicon Valley Bank has exposed many of the weaknesses of banks and led to calls for a change in regulatory oversight. The Bank of England has said that it warned US regulators about the growing risks at Silicon Valley Bank long before its collapse.