First Citizens to buy collapsed Silicon Valley Bank, deal soothes broader markets

New York - First Citizens BancShares agreed to buy failed Silicon Valley Bank (SVB), closing one chapter in the crisis of confidence that has ripped through global financial markets.

Under the deal, the North Carolina-based bank will assume SVB assets of US$110 billion (S$147 billion), deposits of US$56 billion and loans of US$72 billion.

It gave the Federal Deposit Insurance Corp (FDIC), which took control of SVB earlier in March, equity rights in its stock worth as much as US$500 million in return.

Customers retain access to their accounts, First Citizens said, and branches open on Monday.

SVB’s failure will cost its deposit insurance fund about US$20 billion, the FDIC estimates.

SVB was the largest bank to collapse since the 2008 financial crisis.

Its closure on March 10 reverberated around the world, sending United States depositors fleeing smaller banks for larger cousins, while the hit to confidence forced Credit Suisse into the arms of rival UBS last week.

A buyer for SVB helped cast an uneasy calm over fragile markets on Monday, which have been roiled by worries of a credit crunch and systemic bank stress.

The deal has given markets some respite as it sealed the first weekend in several weeks that did not bring news of fresh banking collapses, rescues or emergency help from the authorities.

There are also hopes for extra support for bank funding, after Bloomberg News reported that the US authorities were in early stage deliberation about expanding emergency lending facilities.

“You sweep Silicon Valley off to another buyer, which is good, but the bigger issue is guaranteeing deposits at all those other (regional) banks,” said IG Markets analyst Tony Sycamore in Sydney.

“It’s a little bit of calm before the next storm.”

Last week ended with indicators of financial market stress flashing and Germany’s biggest lender Deutsche Bank in the crosshairs, with its shares down 8.5 per cent on Friday and the cost of insuring its bonds against default up sharply.

On Monday, bank shares in Asia were mixed – mostly steady in Tokyo, as well as Australia, but slipping in Hong Kong, where Standard Chartered shares fell nearly 4 per cent as prices caught up with a wild Friday in Europe.

Shares in European banks surged in early trade, with Deutsche Bank jumping more than 5 per cent after sinking last week on persistent concerns about the health of the financial system.

Deutsche Bank’s shares were up 5.25 per cent in early deals while fellow German lender Commerzbank gained 3.5 per cent, France’s BNP Paribas rose 2.9 per cent and Spain’s Madrid Banco de Sabadell added 3.5 per cent.

The sudden spike in tensions for banks has raised questions about whether major central banks will continue to pursue aggressive interest rate hikes to tamp down inflation, and whether tightened lending will hurt the global economy.

In Europe, bank bonds are under pressure and credit default swaps, or the cost of insurance against defaults, uneasily high.

In the US, where flows into money market funds have risen by more than US$300 billion in the past month to a record of about US$5.1 trillion, focus is on depositors’ confidence.

“It’s clearly not over,” said Australia and New Zealand Banking Group chief executive Shayne Elliott in an interview posted to the bank’s website, where he said the turmoil has the potential to escalate into a bigger financial crisis.

“I don’t think you can sit here and say, ‘Well, that’s all done, Silicon Valley Bank and Credit Suisse and, you know, life will go back to normal,’” said Mr Elliott.

“These things tend to roll through over a long period of time.” REUTERS, BLOOMBERG