U.S. supports the sale of bankrupt Silicon Valley Bank

U.S. regulators said they will support the deal to buy the assets of Silicon Valley Bank (SVB) by a regional bank First Citizens Bank. At the same time, the Federal Deposit Insurance Corporation (FDIC) will lose about $20 billion on the deal.

Starting Monday, the 17 former Silicon Valley Bank branches will operate under the sign “SVB, a division of First Citizens Bank,” and customers of the bankrupt bank will still have access to accounts through its website, mobile apps and branches.

First Citizens Bank said that as part of the deal, it will take over SVB’s $110 billion in assets, $56 billion in deposits and $72 billion in loans.

First Citizens Bank would also receive a line of credit from the FDIC and an agreement with the FDIC to share some commercial loan losses.

First Citizens Bank itself had about $109 billion in assets before the deal and $89.4 billion in total deposits.

Recall that to save stability in the U.S. banking system, the FDIC March 10, acquired SVB after its customers began withdrawing deposits from the bank en masse. It also led to the bankruptcy of New York-based Signature Bank and reduced the market value of several regional U.S. banks.

The FDIC hopes that the deal with First Citizens Bank will minimize the damage to the deposit insurance fund. The FDIC does not use U.S. taxpayer money, but is funded by fees from the entire banking sector.

Under the agreement, the new owner will not pay cash up front to buy SVB. Instead, First Citizens Bank has given the FDIC rights to the amount of incremental value of its stock, which could be worth up to $500 million – just a fraction of what Silicon Valley Bank was worth before bankruptcy.

The FDIC will be able to exercise these rights between March 27 and April 14. How much money it ends up with will depend on the value of First Citizens Bank’s stock. They jumped 50 percent to $874.75 in pre-market trading Monday.

The FDIC’s losses of about $20 billion will be added to the $2.5 billion the FDIC wrote off from the sale of another failed bank, New York’s Signature Bank, which was sold a week ago to New York Community Bank.

The bankruptcy of SVB, the 16th largest U.S. bank, was the largest bankruptcy in the country since the 2008 financial crisis.

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