First Citizens Bank to Acquire Silicon Valley Bank Assets at Discount, FDIC to Share Potential Losses and Gains

First Citizens Bank, a regional U.S. lender based in North Carolina, has agreed to purchase the remaining assets of Silicon Valley Bank (SVB) at a significant discount. SVB recently collapsed into insolvency, prompting the Federal Deposit Insurance Corporation (FDIC) to take over the bank to ensure customer deposits were safe.

Under the terms of the deal, First Citizens will take over “substantially all loans and certain other assets … all customer deposits and certain other liabilities” of the California-based lender. The FDIC has been seeking a buyer for the bank’s operations, which include about $110 billion in assets, $56 billion worth of customer deposits, and about $72 billion worth of business loans.

Starting on Monday, the 17 remaining SVB branches will begin operating as “Silicon Valley Bank, a division of First Citizens Bank.” The purchase price for First Citizens includes a discount of about $16.5 billion from the face value of the loan portfolio.

However, the FDIC will also have a chance to recoup some of its losses, as it will be getting about $500 million worth of equity in First Citizens. The FDIC also says the move to backstop SVB deposits will result in about a $20 billion hit to its coffers, but the exact number can’t be tallied until the receivership is fully terminated, the FDIC said in a release.

As part of the deal with First Citizens, the FDIC agreed to share in potential losses or gains coming out of some of the loans purchased from Silicon Valley Bank. The $20 billion loss wouldn’t come from taxpayers but from an FDIC fund that banks pay into. Banks could ultimately charge slightly more in fees or pay less in interest to their customers to help make up for it, according to experts.

“The question is who should bear those losses?” said financial analyst Klein. “Should seniors get a few less interest points on their bank deposits, or should” big depositors with more than $250,000 at Silicon Valley Bank be willing to lose some of their cash?

Despite the potential losses, First Citizens CEO Frank Holding expressed his gratitude to the FDIC for placing their confidence in his company, stating that they are looking forward to building relationships with new customers and positioning their company for continued success while affirming their commitment to support the integrity of the nation’s banking system.