First Citizens Buys Silicon Valley Bank Loans, Deposits From FDIC: Bank Stocks Gain
First Citizens #FirstCitizens
Regional bank stocks are moving higher Monday following a late-night agreement by First Citizens to buy the assets of failed lender Silicon Valley Bank.
First Citizens BancShares (FCNCA) – Get Free Report agreed to buy failed lender Silicon Valley Bank late Sunday in a deal that could support regional lenders and shore-up confidence in the country’s broader financial system.
North Carolina-based First-Citizens Bank & Trust, a subsidiary, will assume around $56 billion in Silicon Valley Bank deposits and take on the tech start-up lender’s $72 billion loan book at a discount of around $165 billion. The group said it would also receive an additional line of credit from the Federal Deposit Insurance Corp. for what it called “contingent liquidity purposes”.
In a nod to the purchase of Signature Bank New York Community Bancorp last week, First Citizens agreed to offer $500 million in equity enhancement to the FDIC, which will ultimately take a hit of around $20 billion from its intervention in Silicon Valley Bank earlier this month.
“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,” said First Citizens’ CEO Frank Holding. “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.”
First Citizen shares closed at $582.55 each Friday on the Nasdaq, after falling around 1.11% on the session to extend the stock’s year-to-date decline to around 23.2%.
The purchase provided some support for regional bank shares in pre-market trading, as well, following data late Friday showing deposits at smaller lenders fell the most on record in the SVB Financial’s collapse on March 10.
Bloomberg also reported that U.S. officials are exploring ways in which the Federal Reserve could expands its emergency lending facility to regional banks in order to buy more time for struggling lenders, and First Republic in particular, to shore-up their balance sheets.
Deposits are smaller U.S. banks, defined as those sitting outside of the top 25 in terms of asset size, fell by $119 billion to $5.46 trillion over the seven-day period that ended on March 15, according to Fed data. Some of that flight found its way into larger banks, however, with the data showing deposits at larger institutions rose $67 billion to $10.74 trillion.
While not evident from the Fed data, much of the cash that is leaving smaller banks could be finding its way into money market funds, according to Bank of America’s closely-tracked ‘Flow Show’ report, which suggested an addition of more than $300 billion over the past month, taking the overall tally to a record $5.1 trillion.
First Republic FRC shares were marked 25.2% higher in pre-market trading to indicate an opening bell price of $15.47 each. PacWest PACW shares jumped 8.6% to $10.37 each while Western Alliance Bancorp. WALPL gained 5.1% to $34.75 each.
Minneapolis Fed President Neel Kashkari, meanwhile, cautioned that a pullback in lending from banks worried about their deposit base — and access to Fed lending facilities — could ultimately tip the economy into recession.
“It definitely brings us closer,” he told CBS’s ‘Face The Nation’. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. That credit crunch would then slow down the economy.”