Several flailing regional banks got a boost on Monday after First Citizens Bank agreed to buy failed Silicon Valley Bank more than two weeks after its sudden collapse.
The Federal Deposit Insurance Corporation announced the move overnight on Sunday. The North Carolina-based bank agreed to purchase some $72 billion of SVB’s assets for a discounted $16.5 billion and the transfer of deposits worth $56 billion, according to the FDIC.
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The move sent shares of First Citizens surging. The bank, which has more than 500 branches in nearly two dozen states, saw its stock soar by a massive 42% on Monday morning following the revelation.
Other regional banks, many of whom have struggled since the SVB collapse and amid broader fears of a banking crisis, were also in the black on Monday following the purchase.
First Republic Bank, which has lost a whopping 88% of its value over the past month, was up as much as 30% before faltering a bit. By midmorning on Monday, it was up about 15%.
PacWest Bancorp rose by 9%, and Western Alliance Bancorp grew by nearly 5%, while the SPDR S&P Regional Banking ETF, which tracks the performance of regional banks, was up more than 2% since news of the acquisition.
The 17 former branches of SVB opened as First Citizens Bank & Trust Company as of Monday, according to the FDIC, and all depositors with SVB will automatically become depositors of First Citizens Bank.
“Customers of Silicon Valley Bridge Bank, National Association, should continue to use their current branch until they receive notice from First-Citizens Bank & Trust Company that systems conversions have been completed to allow full-service banking at all of its other branch locations,” the FDIC said in a statement.
The FDIC and First Citizens Bank also entered into a “loss-share transaction” on the commercial loans it purchased of the former bridge bank. The FDIC and First Citizens will share in the losses and any recoveries on the loans covered by the loss-share agreement, according to the FDIC.
The news is welcome on Wall Street, which has been fearing that the SVB collapse would spur a contagion that would ripple through the entire United States and global banking systems. There has already been some spillover from the situation in Europe.
Switzerland-based megabank Credit Suisse began faltering earlier this month after the chairman of Saudi National Bank, the bank’s biggest shareholder, announced it would not be increasing its stake amid the SVB fracas.
UBS then agreed to buy out its fellow Swiss competitor, with support from Swiss authorities. Under the terms of the proposed purchase, UBS agreed to purchase Credit Suisse for just over $3 billion, just a fraction of the firm’s estimated value.
Additionally, German-based Deutsche Bank’s stock struggled on Friday after an increase in pricing for its credit default swaps, adding to anxiety surrounding the global banking system. Still, the stock was up on Monday.
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Bank of America researchers, led by Michael Hartnett, said last week there has been an enormous wave of inflows into cash funds across the world following the collapse of SVB and UBS’s absorption of Credit Suisse. The team also predicted that credit and equity markets will falter in the next few months.
In an effort to stop a run on other banks and a hit to the broader economy, the federal government announced that it would back all deposits in SVB and Signature Bank, which also failed shortly after SVB, including those in excess of the FDIC’s $250,000 threshold.