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Thursday, June 20, 2024

NC trend: Perfect timing in banking

For 125 years, First Citizens BancShares operated in relative obscurity as the nation’s largest family-owned bank. That changed overnight in March when it plucked $72 billion of Silicon Valley Bank’s deposits and loans about two weeks after the biggest U.S. banking collapse since 2009.

In a transaction negotiated with the Federal Deposit Insurance Corp., the Raleigh-based bank gained 18 branches, received a discount of about $16.5 billion on Silicon Valley’s assets, and gained relationships with thousands of successful tech companies and tech investors at the California-based institution.

First Citizens’ stock, which traded at about $585 in late March, soared to more than $900 when news of the deal broke. In mid-April, shares were trading for about $1,000, putting the company’s market value around $14.3 billion. Its $218 billion in assets puts it among the 20 largest U.S. financial institutions with more than 500 branches in 23 states.

The FDIC took over Silicon Valley on March 10 after depositors pulled more than $40 billion within a few days from the bank, following a multibillion dollar loss on the sale of bonds and other investments hurt by rapid interest rate increases. Under the FDIC agreement, the government will share in any potential losses on the commercial loans acquired by First Citizens over five years. About $90 billion in Silicon Valley securities that were “underwater” will remain with the FDIC.

The deal largely stemmed from First Citizen’ opportunistic style, reflected in more than a dozen previous failed-bank deals negotiated with regulators since the 2008 financial crisis. “First Citizens has a history of troubled banks,” according to Herman Chan, an analyst with Bloomberg Intelligence. “It’s a strategy to grow the bank when times are difficult — to conduct M&A at advantageous prices.”

David Mildenberg
David Mildenberg
David Mildenberg is editor of Business North Carolina. Reach him at dmildenberg@businessnc.com.

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