Silicon Valley Bank collapse: First Citizens to buy financial institution

North Carolina-based First Citizens will buy Silicon Valley Bank, the tech industry-focused financial institution that collapsed earlier this month, rattling the banking industry and sending shockwaves around the world.

The deal could reassure investors at a time of shaken confidence in banks, though the Federal Deposit Insurance Corp. and other regulators had already taken extraordinary steps to head off a wider banking crisis by guaranteeing that depositors in SVB and another failed U.S. bank would be able to access all of their money.

Customers of SVB will automatically become customers of First Citizens, which is headquartered in Raleigh. The 17 former branches of SVB will open as First Citizens branches Monday, the FDIC said.

Nasdaq-traded shares of First Citizen BancShares Inc. jumped 12.4 per cent to US$654.95 in premarket trading Monday. Shares in mid-sized San Francisco-based First Republic Bank, which serves a similar clientele as Silicon Valley Bank and had appeared to be facing a similar crisis, surged 24.3 per cent in premarket trading.

European shares opened higher Monday, with German lender Commerzbank AG up 2.4 per cent and BNP Paribas up 1.2 per cent.

Investors worry that other banks also may crumble under the pressure of higher interest rates. On Friday, much of the focus was on Deutsche Bank, whose stock tumbled 8.5 per cent in Germany, though it was back up about 3.6 per cent in early trading Monday. Earlier this month, shares of and faith in Swiss bank Credit Suisse fell so much that regulators brokered a takeover of by rival UBS.

2:04 Silicon Valley Bank collapse: Ripple effects to be felt by Canadian households

In the U.S., SVB, based in Santa Clara, California, collapsed March 10 after depositors rushed to withdraw money amid fears about the bank’s health. It was the second-largest bank collapse in U.S. history after the 2008 failure of Washington Mutual. Two days later, New York-based Signature Bank was seized by regulators in the third-largest bank failure in the U.S.

In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of US$250,000, so depositors were able to access their money.

New York Community Bank agreed to buy a significant chunk of Signature Bank in a US$2.7 billion deal a week ago, but the search for a buyer for SVB took longer.

After First Republic Bank came under heavy selling by panicked investors, 11 of the biggest banks in the country announced a $30 billion rescue package. The money has given First Republic a lifeline while it reportedly seeks a buyer.

The sale of Silicon Valley Bank announced late Sunday involves the sale of all deposits and loans of SVB to First-Citizens Bank and Trust Co., the FDIC said.

The acquisition gives the FDIC shares in First Citizens worth US$500 million. Both the FDIC and First Citizens will share in losses and the potential recovery on loans included in a loss-share agreement, the FDIC said.

The FDIC will retain about $90 billion of Silicon Valley Bank’s US$167 billion in total assets, as of March 10, while First Citizens will acquire US$72 billion at a discount of US$16.5 billion, the FDIC said. It said it estimates Silicon Valley Bank’s failure will cost its industry-funded Deposit Insurance Fund about US$20 billion.

First Citizens Bank was founded in 1898 and says it has more than US$100 billion in total assets, with more than 500 branches in 21 states as well as a nationwide bank. It reported net profit of US$243 million in the last quarter. It is one of the top 20 U.S. banks and says it is the largest family-controlled bank in the country.