First Citizens Banks will acquire Silicon Valley Bank (SVB), whose collapse made waves across the financial sector globally. 

First Citizens will assume SVB’s deposits worth $119 billion (£96.9bn). The transaction was made for $72 bn (£58.6bn) with a discount of $16.5 bn (£13.4bn). The US Federal Deposit Insurance Corporation (FDIC) will maintain receivership of $90 bn (£73.6bn) in securities and other assets according to a release by the FDIC. 

 Additionally, the FDIC will receive equity appreciation rights in First Citizen Bank’s common stock with potential value of up to $500 million (£407m). 

The FDIC says the approximate cost of SVBs failure to be approximately $20 billion, however the exact amount will be determined once the FDIC terminates receivership. 

First Citizens Bank said it will open 17 former SVB branches as First Citizens branches on Monday. All SVB customers will become First Citizens customers following the purchase. 

The FDIC took receivership of SVB following its closure by the California Department of Financial Protection for the purpose of stabilizing the institution and marketing the franchise for a potential buyer. 

The sale of SVB sparked growth in banking shares globally, with an index of Europe’s top banks rising 1.4% on Monday morning after significant losses the week prior. 

The UK’s arm of SVB was settled quickly earlier this Month as it was bought by HSBC.

Following the collapse of its US parent, Silicon Valley Bank UK (SVBUK) was set to be placed into insolvency by Sunday night in the absence of what the Bank of England called an “interesting event.”

This would have left UK tech companies in a vulnerable position, as they would have lacked the cash to pay staff and suppliers and been forced to be sent into involuntary liquidation.  

The crisis was averted when the Bank of England announced that HSBC had struck a last minute deal to buy SVBUK for £1 this morning. The move came after talks over the weekend between lenders, the treasury and start-up representatives. It ensures the continuity of banking services and minimises disruption to the UK tech sector.

According to the release, all SVBUK depositors’ money is now secure. “SVBUK’s business will continue to be operated normally by SVBUK,” said the announcement. “All services will continue to operate as normal and customers should not notice any changes.”

According to the announcement, loan repayments can be made as regular. SVBUK staff will also remain employed and it will continue to be a PRA/FCA authorised bank.  

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SVBUK was left in this position following what is known as a bank run in the US. This is when clients withdraw their money from a bank en masse because they believe the bank will collapse. 

SVB came to be on the brink of collapse due to the US Federal Reserve rate falling to near-record lows causing central banks to raise interest rates. SVB’s deposits grew from $62 billion USD (£51.2 billion) in 2019 to $173 billion (£143.1 billion) at the end of last year in the wake of the pandemic tech boom. 

SVB attempted to bolster their bank with safe, long-term debt securities such as government bonds and US mortgages. However, due to the raised interest rates, their investments plummeted and venture capital firms started to suggest their companies pull deposits. 

On Sunday March 12th, Banking regulators in the US said depositors at the shuttered SVB would have access to their funds today, curbing worries that they would be unable to pay staff this week.

However, because the bank has still not found a buyer, questions still remain to be answered about the larger start-up funding environment in the US which rely on SVB for support.

Feature image courtesy of HSBC