Culture Clash much? The Federal Deposit Insurance Corporation (FDIC) sold a chunk of Santa Clara, Calif.-based Silicon Valley Bank to Raleigh, North Carolina-based First Citizens Bancshares.
Raleigh-based First Citizens -- the country's 30th largest bank at the end of 2022 with more than 500 branches across 22 states -- will move into the top 25 U.S. banks in terms of assets in the wake of this deal. First Citizens is buying about $72 billion worth of SVBB loans at a discount. The FDIC will share First Citizens' losses or potential gains on SVB's commercial loans, according to the Wall Street Journal.
SVBB depositors will become First Citizens depositors over time. SVBB's 17 former branches in California and Massachusetts will open March 27 as First-Citizens Bank & Trust Company. All other SVBB depositors will become First Citizens depositors when "systems conversions have been completed to allow full-service banking at all of its other branch location," according to the FDIC.
First Citizens CEO Frank Holding Jr. sound happy about this transaction. "We look forward to building relationships with our new customers and positioning our company for continued success as we affirm our commitment to support the integrity of our nation's banking system," according to a news release.
The FDIC did not take control of all of SVB's businesses. SVB's former parent company, SVB Financial -- which filed for bankruptcy on March 17 -- maintained control of other SVB businesses -- "including the investment manager SVB Capital and the brokerage firm SVB Securities. SVB Financial plans to run a separate process to sell" these and other units, according to the New York Times.
While fast growth is considered a positive for high tech companies, it is generally nota good look for banks. That's because fast growth could be a sign that management is adding deposits and loans by throwing risk restraints to the wind.
So should the world be concerned that First Citizens increased its assets by 90% in 2022? According to the New York Times, First Citizens "has grown significantly over the past several years, in part by buying government-seized community banks. Such deals can be lucrative depending on how much assistance the government offers as part of the transaction."
First Citizens says that since 2009, it is been the FDIC's go-to bank for selling the community banks it takes over. "First Citizens has a reputation for financial strength, exceptional customer service and prudent lending that spans 125 years. We have partnered with the FDIC to successfully complete more FDIC-assisted transactions since 2009 than any other bank," Holding said in a statement.
The SVB deal will contribute to First Citizens' rapid growth. Those $72 billion in assets will boost its 2022 year-end asset total by about 70% -- without taking into account new assets it has added in the first three months of 2023.
Banking is not just about numbers. On the face of it, First Citizens may not share the same insight into the banking needs of the venture-backed startup ecosystem as did SVB's Silicon Valley and Boston-based bankers.
I would not be surprised if many SVB depositors decided to decamp to financial institutions with a better understanding of their needs.
Holding intends to keep that from happening. As he said in a statement, "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."
While the First Citizens win sounds like a win, many questions remain:
To be sure, The Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank have said that they will make U.S. dollar financing easier to come by.
Moreover, the Fed set up an emergency lending program -- which will enable banks to borrow using collateral that could be impaired -- "to help provide additional support to banks," according to the New York Times.
In pre-market trade, shares of First Citizens are up a nickel a share and stock futures are up slightly.
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