: First Citizens’ stock notches largest one-day rally ever on deal for Silicon Valley Bridge Bank

The FDIC created Silicon Valley Bridge Bank N.A. on March 13, following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation.

First Citizens Bancshares’ stock ended the day’s trading at $895.61, up 53.7% and approaching the stock’s all-time high of $907.04 on Sept. 2, 2021, according to FactSet data. The stock’s rise eclipsed its previous record of a 21.4% gain on March 23, 2009, as Wall Street cheered the deal.

“[The] transaction … adds further low-risk growth to a healthy investment thesis,” Janney Montgomery Scott analysts said in a research note. The firm reiterated its buy rating and said the stock will “significantly benefit” First Citizens’ tangible book value.

First Citizens Bancshares said the deal would “significantly” boost its earnings but said it would provide more specific guidance going forward.

The bank already has exposure to Silicon Valley Bank’s venture-capital world through its business with companies in North Carolina’s Research Triangle, said Frank B. Holding Jr., the chair and CEO of Raleigh, N.C.-based First Citizens Bancshares.

Also read: First Citizens grows bigger with Silicon Valley Bank deal, but not big enough to move to next regulatory level

The bank’s track record with the FDIC in buying distressed banks such as CIT Bank, along with its conservative approach and strong balance sheet, helped it prevail in the government’s auction for Silicon Valley Bank, Holding said.

“This transaction is compelling financially, strategically and operationally,” he said on a conference call with analysts.

The deal left some observers wondering about how the high-flying culture of Silicon Valley would be served by a more conservative bank based on the East Coast.

The deal came a little more than two weeks after Silicon Valley Bank went bust.

As of March 10, Silicon Valley Bridge Bank had approximately $167 billion in total assets and about $119 billion in total deposits, the FDIC said. The deal included the purchase of about $72 billion of Silicon Valley Bridge Bank’s assets at a discount of $16.5 billion.

Roughly $90 billion in securities and other assets will remain in FDIC receivership for disposition, and the regulator has received equity appreciation rights in First Citizens’ common stock worth up to $500 million.

Prior to Monday’s deal, First Citizens’ stock had sunk 23% year to date — mostly over the past month — and was down 15% over the past 12 months, compared with the S&P 500’s
SPX,
+0.16%
3.4% gain so far in 2023 and its 13% decline over the past year.

The FDIC and First Citizens entered into a loss–share transaction on the commercial loans of Silicon Valley Bridge Bank purchased by First Citizens. The FDIC said it would share in the losses and potential recoveries on the loans covered by that agreement, which is “projected to maximize recoveries on the assets by keeping them in the private sector” and to minimize disruptions for loan customers. First Citizens will also assume all loan-related qualified financial contracts.

The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund at roughly $20 billion, the exact cost of which will be determined when receivership is terminated.

The purchase by First Citizens includes Silicon Valley Private Bank, which was auctioned off in a separate process.

Speculation that First Citizens, which has bought 20 failed banks since 2009, was pursuing an acquisition of Silicon Valley National Bank emerged last week. Bloomberg, which first reported that First Citizens would enter a deal for the bank on Sunday, had also reported that Valley National Bancorp
VLY,
+0.43%
 was vying to purchase the failed bank. Bloomberg reported that First Citizens had previously made an offer for the bank immediately after its collapse.

Also read: First Republic’s stock up 24% as First Citizens deal for Silicon Valley Bank lifts banks