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First Citizens' shares soar on potential gain from SVB bridge bank acquisition


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First Citizens' shares soar on potential gain from SVB bridge bank acquisition

First Citizens BancShares Inc. is committed to building on Silicon Valley Bank's core business of serving private equity and venture capital clients and hopes to attract back some of the deposits that fled, executives said during a conference call to cover the deal to acquire the failed bank assets.

The transaction, which includes $72.11 billion of gross loans and $56.49 billion of deposits at Silicon Valley Bridge Bank NA offers a potentially massive lift to First Citizens' equity value and earnings. First Citizens negotiated a $16.45 billion discount to the acquired assets, which will drive the equity created in the deal. First Citizens had tangible common equity of $8.30 billion at the end of 2022.

Executives declined to estimate specific numbers for tangible book value and EPS accretion, noting that purchase accounting marks for the acquired balance sheet have yet to be determined, but said they would be "healthy." CFO Craig Nix said First Citizens had aimed for a discount that would result in at or above all of its target capital ratios and that the combination will keep First Citizens above its common equity Tier 1 ratio target of 9% to 10%.

The deal includes an arrangement that allows the Federal Deposit Insurance Corp. to participate in some of the upside for First Citizens shares over the next couple of weeks, providing for a cash payout from First Citizens to the FDIC of up to $500 million, based on the appreciation in First Citizens stock relative to the closing price of $582.55 the last trading day before announcement. On March 27, First Citizens shares were up about 50% to just under $879 around 12:30 p.m. ET.

First Citizens, an experienced acquirer of failed institutions, closed a transformational merger of equals with CIT Group Inc. at the beginning of 2022.

Chairman and CEO Frank Holding Jr. acknowledged that First Citizens is "not well known for expertise in the digital and innovation economy," but he noted that its home market is in the technology hub of Raleigh, NC. "We are committed to building on and investing in legacy SVB's global fund banking business to preserve these strong relationships."

Nix said retaining employees at Silicon Valley Bank is "very critical," and that First Citizens has "a team on the ground right now, making connections."

"We are highly motivated and focused on retaining key talent," Nix said. "We're very excited about the depth of the talent at SVB and are looking forward to getting to acquaint ourselves with it."

Silicon Valley Bank appears to have suffered substantial additional deposit outflows since the initial run that led to its collapse. The $56.49 billion of deposits First Citizens is acquiring compares with $119 billion in total deposits at March 10, when regulators took over SVB.

First Citizens said 63% of the deposits it is acquiring are non-interest-bearing demand deposits, and it will focus on retaining operating accounts. Nix said the bank does not anticipate further runoff.

"We want to ensure their customer base that they'll be supported at the same level they were supported prior to this acquisition," he said. "We like their businesses. We think this fits."

First Citizens did substantially boost its cash position as part of the deal, including by borrowing $35 billion from the FDIC at an interest rate of 3.5% through a five-year note. The bank also has a five-year, variable rate $70 billion line of credit with the FDIC.

The deal includes "substantially all" of Silicon Valley Bridge Bank's balance sheet except its $90 billion of held-to-maturity securities, Nix said.

Nix said loan growth at Silicon Valley Bank was driven by capital call facilities, where private equity funds borrow money ahead of capital contributions from investors, and which he said was one of the failed bank's "lowest risk loan portfolios." About 3% of Silicon Valley Bank's loans were in its highest risk portfolio of early-stage lending. The acquisition includes a loss-sharing agreement with the FDIC.

First Citizens said its own deposits have grown $1.3 billion since the end of the year, driven by its direct bank.