The Bank Slate

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First Citizens buys SVB bridge bank deposits, loans

First Citizens BancShares in Raleigh, N.C., has entered into a purchase and assumption agreement to buy deposits and loans tied to Silicon Valley Bridge Bank from the Federal Deposit Insurance Corp.

The FDIC said in a press release that the bridge bank’s 17 branches will open as First–Citizens Bank & Trust locations today. All deposits assumed by First Citizens will continue to be insured by the FDIC up to the insurance limit.

The $109 billion-asset First Citizens said in a press release that it assumed $110 billion of assets, $56 billion of deposits and $72 billion of loans. The deal included SVB Private Bank.

The bridge bank had $167 billion of assets and $119 billion of deposits on March 10.

First Citizens bought $72 billion of the bridge bank’s assets at a $16.5 billion discount. About $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC.

The FDIC received equity appreciation rights in First Citizens BancShares common stock with a potential value of up to $500 million. There are 5 million equity units with a strike price of $582.

The FDIC and First Citizens entered into a loss–share transaction for the commercial loans.  The FDIC and First Citizens will share in the losses and potential recoveries on the loans covered by the agreement. First Citizens will assume all loan–related qualified financial contracts.

First Citizens said in a regulatory filing that the loss-share agreement covers about $60 billion of loans. The FDIC would would reimburse First Citizens for 50% of losses in excess of $5 billion, while the bank would reimburse the FDIC for 50% of recoveries tied to those covered assets.

The FDIC loss-share coverage is for five years, while the bank’s reimbursement period last eight years.

First Citizens said the agreement excludes cryptocurrency assets, any asset backed by crypto and deposits denominated in crypto. It also excludes SVB’s China joint venture and a Cayman Islands branch.

First Citizens has an option to buy SVB branches in Germany, Canada and Hong Kong.

First Citizens issued a five-year, $35 billion note to the FDIC for its initial payment. The note will likely be secured by loans and certain real estate and bank premises First Citizens gained from the transaction, along with certain other assets and proceeds.

The FDIC is providing First Citizens with a five-year, $70 billion line of credit. During the next two years, First Citizens can draw from the line to support liquidity that includes deposit runoff and withdrawals.

The line of credit is secured by commercial loans and other extensions of commercial credit obtained through the acquisition. First Citizens may prepay any advances without premium or penalty.

The FDIC estimated that the failure will cost its Deposit Insurance Fund about $20 billion.

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