First Citizens Bank Takes Over Silicon Valley Bank

First Citizens Bank is acquiring the bulk of Silicon Valley Bank’s deposits and loans, roughly doubling the size of the bank

They’ve been able to purchase the assets at a discount of $16.5 billion

While depositors have been protected, the clean up from the Silicon Valley Bank (SVB) collapse has been ongoing in the background.

In the weekend following the shutdown, a new bridging bank, backed by the FDIC, was set up as an interim measure to continue to provide banking services to SVB customers.

But this was only ever a temporary measure, and a buyer for the majority of SVB’s assets has now been found. The proud new owner of the loans and deposits is North Carolina-based First Citizens Bank.

In total, First Citizens Bank will pick up $56 billion of new deposits and $72 billion of existing loans, at a discount of $16.5 billion.

For many investors, this news will be the first time they’ve ever heard of First Citizens Bank and their holding company First Citizens Bancshares. So was this a good call by the regulator, and is it a good deal for First Citizens shareholders?

Who is First Citizens Bank?

They’re hardly a household name, but they’re bigger than you probably think. First Citizens has 582 physical bank branches across 22 states, though the majority of those are situated in North and South Carolina.

That’s due to change, as 17 branches of Silicon Valley Bank will now have an extra line of text added to the front door — “A division of First Citizens Bank.”

Despite not being widely known, First Citizens Bank has been around a very long time, with the company first founded back in 1898 as the Bank of Smithfield.

Interestingly in modern times, the bank has been led by the same family for three generations. Robert Powell Holding became president of the bank back in 1935 and was succeeded by his son Lewis Holding in 1959. In 2008, it was Lewis Holding’s nephew, Frank B. Holding Jnr. who would take the reigns, remaining as Chairman and CEO to this day.

Why First Citizens Bank, and not a large bank like JPMorgan or Bank of America?

So First Citizens has a long and rather quaint history. But why did the regulators and the FDIC elect to have them take over SVB’s assets, rather than one of the more obvious choices.

Well to start with, First Citizens has a long history of both acquisitions and working with the regulators. In fact, they’ve taken over 50 other companies since 1990, and 23 of those have been taken over via the FDIC.

This is vitally important in the takeover of Silicon Valley bank. The FDIC has provided a backstop and emergency funding to ensure that customers haven’t been impacted, but they aren’t in the banking business.

It was only ever designed to be a short term solution, and aligning with a bank with a long history of similar acquisitions will mean that the full transition can happen quickly.

Another major reason the regulators had to look past the big banks is that they face stricter conditions over their capital position. Systemically important banks, also known as too-big-to-fail banks have special privileges that allow them to operate with more leeway than smaller banks.

But part of the deal is that they also face stricter capital requirements. In particular in this instance, they’re only able to hold a certain percentage of U.S. based deposits on their books. Taking over $56 billion in new U.S. deposits in one go would likely have caused them some issues around these regulations.

The deal and its implications for shareholders

There’s no two ways about it, this is a great deal for First Citizens Bank shareholders. Bank executives have added a massive amount of additional assets to their book at a knockdown price.

Not only that, but they’ve been able to take the assets they want and leave the ones they don’t. Specifically, they’re not taking on the $90 billion of long term U.S. treasuries which caused the whole SVB bank run in the first place.

Overall this deal will roughly double the value of the assets held by First Citizens Bank, from $109 billion in December last year, to roughly $219 billion after the takeover. It takes them from the 30th largest bank in the United States, to around the 15th.

So all in all, it’s been a massive win for First Citizen Bank investors, and that’s been reflected in the share price. It jumped immediately on Monday following the news, finishing the day up over 50%. It’s likely we’ll see a pull back as traders take profits, but nonetheless it’s been a big day for shareholders.

The bottom line

Volatility creates opportunity. While it’s hard for investors to see markets moving all over the place, it’s during these times that some of the biggest gains can be had. Depending on whether you take a long term passive approach or undertake a more active investment strategy, will determine how much of a benefit you can generate from the fluctuations.

But for many retail investors, trading on a short term basis is only going to end up in disappointment. That’s why for the vast majority of people, a long term position and sufficient diversification are the name of the game.

By spreading assets across a wide range of different securities, you increase your potential for having exposure to big wins, like First Citizens Bank, when their time comes.

If you prefer to have your money actively managed, there are options for this that don’t involve watching charts on four computer monitors for 8 hours a day. Investing in actively managed ETFs or investment funds can allow you to benefit from quick trades, while utilizing the expertise of professionals.

However, this can be expensive. Luckily, there is also another option.

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