First-Citizens Bank Assumes SVB's Deposits and Loans
Commentary by Sebastian Souchet
First-Citizens Bank & Trust Company, ("First-Citizens Bank") of North Carolina agreed to assume all deposits and loans of the FDIC's Silicon Valley Bridge ("SVB") Valley Bridge Bank.
In a press release, the FDIC announced the "purchase and assumption" agreement. As of Monday, March 27, 2023, 17 former branches of SVB opened as First-Citizens Bank. The FDIC stated that depositors of SVB will automatically become depositors of First-Citizens Bank and that their deposits will continue to be insured by the FDIC up to the insurance limit. In accordance with the agreement, the FDIC said that First-Citizens Bank purchased $72 billion of SVB’s $167 billion in total assets at a discount of $16.5 billion; however, $90 billion of SVB's securities will remain in the receivership for disposition by the FDIC.
The FDIC received equity appreciation rights in First Citizens BancShare, Inc., Raleigh, North Carolina, common stock which could have a value of up to $500 million. Additionally, under a loss-share transaction entered into on SVB’s commercial loans purchased by First-Citizens Bank, both First-Citizens Bank and the FDIC agreed to share in the losses and potential recoveries on the loans. The FDIC predicted that the loss-share transaction will (i) maximize recoveries on the assets by holding them in the private sector and (ii) reduce disruptions for loan customers. First-Citizens Bank will also assume all loan-related Qualified Financial Contracts. The FDIC anticipates the cost of SVB’s failure to the Deposit Insurance Fund will be approximately $20 billion, with the exact cost determined when the FDIC terminates its receivership.
Commentary
The FDIC’s press release provides only some of the material facts of the First-Citizens acquisition. Looking at the related Form 8-K, the purchase agreement excludes: (i) any obligation for First-Citizens to purchase any Qualified Financial Contracts or other “derivative instructions” to the extent that First-Citizens has not acquired the underlying assets or liabilities; (ii) crypto assets and assets backed by cryptocurrency; and (iii) the German, Canadian, and Hong Kong branches of SVB, as well as SVB’s Chinese joint venture. Furthermore, the FDIC agreed to indemnify First-Citizens against stockholder and creditor claims, as well as “claims based on any action or inaction of [SVB] or its directors, officers, employees, or agents.”
One further unique fact about the terms of the purchase agreement: the FDIC agreed to provide a 5-year, $70 billion secured line of credit to First-Citizens that serves as a liquidity hedge against the commercial lending commitments that First-Citizens’ acquired. Specifically, the Form 8-K states that First-Citizens may draw on the line of credit to “support liquidity, including for deposit withdrawal or runoff and to fund the unfunded commercial lending commitments acquired.” The line of credit is secured by the commercial loans and “other extensions of commercial credit acquired.”
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