First Citizens Bank from North Carolina has made a deal with (the Federal Deposit Insurance Corporation (FDIC) to buy a $72 billion chunk of Silicon Valley Bridge Bank, previously known as Silicon Valley Bank which collapsed two weeks ago after depositors, in a crisis of confidence, made a run on it and withdrew as much as $42 billion in a single day. According to Federal Deposit Insurance Corporation (FDIC), seventeen former branches of Silicon Valley Bank will open as First Citizens Bank later today.
This First Citizens Bank will purchase $72 billion worth of deposits and loans from the demised bank at a discount of $16.5 billion. That would leave about $90bn of securities and other assets of the troubled bank with the FDIC, which is acting as its receiver now. The FDIC will receive “equity appreciation rights” linked to First Citizens’ shares, which it said could be worth as much as $500mn.
As FDIC announced the deal, it said the collapse of SVB could cost its Deposit Insurance Fund, paid for by member banks, about $20bn. That would make SVB the biggest money-losing failure in the history of the US insurance deposit fund, which was started in 1933, surpassing the $12bn loss it incurred from the collapse of IndyMac at the start of the 2008 financial crisis.
US stocks have shown slight gains while bonds slid as the banking sector rebounded from recent lows as panic over the banking sector eases on the news of First Citizens Bank's purchase of Silicon Valley Bridge Bank. The Dow Jones Industrial Average has risen 250 points or 0.8%. The S&P 500 has gained 0.6%. The Nasdaq Composite has risen 0.5%.
First Citizens’ stock soared 43%, and shares of other banks that investors have deemed as the next potential victims of a run-on by customers also strengthened. First Republic Bank rose 18.2% and PacWest Bancorp rose 4.9%.
“It has been a relatively calm start to the week, with investors seemingly relieved that the weekend brought no fresh turmoil in the banking sector,” Craig Erlam, senior market analyst at Oanda wrote to Barrons.