North Carolina-based First Citizens has acquired Silicon Valley Bank (SVB), a financial institution focused on the tech industry.
This week’s purchase comes after SVB collapsed earlier this month, causing shockwaves throughout the banking industry worldwide, as previously covered by The Dallas Express.
First Citizens entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to “purchase out of FDIC receivership substantially all loans and certain other assets, and assume all customer deposits and certain other liabilities [of SVB],” per a news release on Monday.
SVB assets amount to $110 billion, with $56 billion in deposits and $72 billion in loans. First Citizens also received an “available line of credit from the FDIC for contingent liquidity purposes” in its agreement, the release said.
The deal did not include an additional $90 billion in securities that the FDIC will have to find a buyer for and which are now worth less due to recent federal interest rate increases.
“We have partnered with the FDIC to successfully complete more FDIC-assisted transactions since 2009 than any other bank, and we appreciate the confidence the FDIC has placed in us once again,” First Citizens Chairman and CEO Frank B. Holding Jr. said about the deal, per the news release.
The FDIC and other governing bodies had already implemented exceptional measures to prevent a broader banking crisis by ensuring that depositors of SVB and Signature Bank, which also collapsed, would have access to all their funds, as The Dallas Express reported. This included deposits amounting to over $250,000, which is the usual federally insured limit.
Almost all of Signature Bank was bought in a $2.7 billion deal last week by New York Community Bank, per Associated Press News.
With the deal in place, the clients of SVB have been transitioned to First Citizens and all 17 former SVB branches are now running as a First Citizens division.
In response to the news, First Citizens BancShares (FCNCA), was up 47% on Monday morning, per Yahoo Finance.
Our smaller regional banks are so important. This is the primary base from which small business loans and mortgages originate.
As everyone should know, it is these loans which create money out of thin air. M2 – the money supply.
When the money supply contracts (which it has at an alarming rate), then we enter recession territories because there is less money to go around.
ZeroHedge adds some simplicity
https://www.zerohedge.com/markets/how-collapse-svb-led-16-billion-taxpayer-funded-handout-one-bank
EXCERPT
The deal that First Citizens inked was nothing short of spectacular and explains how the small bank managed to double its stock price overnight. Here is what happened:
** In exchange for a discount bid of $16.5 billion, First Citizens acquired total assets of $110.1BN (including $35.3BN in cash), and $93.6BN in liabilities, including $56.5BN in deposits and $34.6BN in assumed borrowings.
** More importantly, none of the $90BN in underwater HTM “investment securities” that sparked the crisis in the first place were acquired; no the US taxpayers got to keep those courtesy of the FDIC.
** There’s more: to further sweeten the deal, the FDIC pledged even more taxpayer funds to “incentivize” First Citizens not to walk away, and it did so by signing a five-year loss share agreement according to which the FDIC will reimburse First Cititzens for 50% of losses on commercial loans in excess of $5 billion.
I mentioned HTM “investment securities” on another Dallas Express article:
https://dallasexpress.com/business-markets/credit-suisse-secures-50b-to-stay-afloat/#comment-12969
HTM (Held-to-Maturity) bonds
Debt Securities (Bonds) are typically issued by corporations or governments (including local cities). The Bond Market is HUGE…much, much larger than the Stock Markets.
Banks, pension funds, retirement accounts, and insurance companies often own bonds.
A Bond is a promise to pay a certain amount of money in the future at “Maturity” (usually based on an interest rate.)
Entities which had purchased Bonds previous to 2022 have been holding bonds which paid a very low interest rate at “Maturity”.
Bank accounting works with HTM (Held-to-Maturity) bonds.
If banks tried to sell their previously purchased bonds, they would take a big loss because current interest rates are much higher than a few years ago.
Bank accounting classifies HTM (Held-to-Maturity) bonds in a special category so that it does not show a loss on their financial report.
But the banks also cannot sell these bonds in the event that they need cash.
This is one of the reasons that banks are stressed.