Updated: Mar 28
The market opened in green territories this Monday after a hectic week in financial markets. The S&P 500 is up 0.11% today, the Dow is up 0.54%, but the Nasdaq is down 0.68%. One of the reasons why the stock market is doing fine today is because of a major acquisition that happened in the banking sector. Indeed, First Citizens Bank, one of the major banks in the United States, purchased the failed bank, Silicon Valley Bank.
On Sunday, March 26, 2023, the FDIC announced that First Citizens Bank has reached a deal to purchase Silicon Valley Bank. First Citizens Bank & Trust Company entered a purchase agreement for all deposits and loans of Silicon Valley Bank. Today, SVB opened its doors as First Bank Citizens. The FDIC in a statement:
“The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First-Citizens Bank & Trust Company on Monday, March 27, 2023 [...] 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 purchase agreement includes $56.5 billion in deposits and about $72 billion of SVB’s loans at a discount of $16.5 billion, and some $90 billion of SVB’s securities will remain in receivership. The sale represents a milestone in regulatory efforts to clean up after two of the largest bank failures in history, at a time when investors are on edge about the health of the global financial system. The acquisition of SVB is meant to bring some peace to the banking system and reassure investors that the banking system is still solid and that SVB was just a bad apple, and its failure does not define the banking system as a whole. The acquisition of SVB led to a 40% surge in First Citizens’ shares.
The failure of SVB should not come as a surprise. In fact, the bank’s financial condition shows that its failure was imminent. The bank’s parent company disclosed that the market value of its held-to-maturity bonds was $15.9 billion less than their balance-sheet value at the end of September 2022. This gap was slightly more than SVB’s $15.8 billion total equity at the time, a measure of the bank’s net worth.
Bank stocks appeared resilient in early trading on Monday. Shares of Wells Fargo, JP Morgan Chase, and Citi Bank rose slightly in early trading on Monday following the acquisition. Susannah Streeter, the head of money and markets at Hargreaves Lansdown, told Reuters that there is a relief that First Citizens Bank, one of America’s largest family-controlled banks, has come to the rescue because this acquisition will bring some tranquility to the banking sector. While it is true that this acquisition eased investors, it does not mean that the banking sector is entirely safe. We can only hope that this acquisition establishes the path to recovery of the banking sector.