First Citizens BancShares said it stands to gain substantial scale and earnings power with its purchase of big chunks of the failed Silicon Valley Bank.
Analysts embraced the deal, saying the buyer could draw upon its proven history of failed bank acquisitions to bolster its Western footprint. First Citizens said the deal should drive robust earnings accretion, thanks to a steep discount and loss protections.
However, management refrained from providing specific numbers until the bank reports earnings in April.
As part of the agreement, First Citizens will assume $110 billion of SVB's assets, doubling its size. SVB had about $209 billion of assets as of December 31. The FDIC agreed to share any of First Citizens' losses or potential gains on SVB's commercial loans.
The FDIC-brokered deal on Sunday gave the Raleigh, North Carolina-based First Citizens $56.5 billion of deposits and about $72 billion of loans at a $16.5 billion discount. It leaves about $90 billion of SVB's securities in FDIC receivership. First Citizens also picked up 17 branches in the deal.
"There are always risks with any deal, in theory, but they are very well-insulated," Piper Sandler analyst Stephen Scouten said of First Citizens in an interview Monday. What's more, he said, it made sense from the FDIC's perspective to select First Citizens, given its dealmaking history and expertise in assessing the assets and liabilities of failed banks. "This deal jibes with how First Citizens has shown in the past they can capitalize on disruption."
First Citizens grew into one of the biggest regional banks in the U.S. in large part because it clinched 14 acquisitions of shuttered banks with the Federal Deposit Insurance Corp.'s assistance in the aftermath of the 2008 financial crisis. More than 400 banks failed from 2008 to 2012.
Additionally, Scouten said, from a strategic perspective, the transaction complements First Citizens' most recent foray on the M&A front:
CIT and First Citizens together bought more than 25 banks over the past dozen years. CIT acquired the $23 billion-asset OneWest Bank in Pasadena, California, in 2015 and the $8.3 billion-asset Mutual of Omaha Bank in Nebraska in 2020.
First Citizens did not immediately respond to an interview request. In a press release Monday, Frank Holding Jr., the company's chairman and CEO, said First Citizens' "financial strength" and long history of "prudent" lending and dealmaking played into its selection as the buyer.
"We have partnered with the FDIC to successfully complete more FDIC-assisted transactions since 2009 than any other bank, and we appreciate the confidence the FDIC has placed in us once again," Holding said. "We look forward to building relationships with our new customers and positioning our company for continued success as we affirm our commitment to support the integrity of our nation's banking system."
During a call with analysts early Monday, Holding described the expected accretion on the deal as "significant," though he did not elaborate.
Chris Marinac, the director of research at Janney Montgomery Scott, noted that this marks the second time in a little over a year that First Citizens has doubled its size — after doing so with the closing of the CIT deal in January 2022.
"The SVB deal is transformative by anyone's definition," Marinac said in an interview. "It's a very low cost way of doubling the balance sheet. … It's a story of compound growth without having to issue any shares. The earnings accretion should be very meaningful."
He said First Citizens' decision to hold off on providing specific accretion expectations and other targets may disappoint some impatient investors, but under the circumstances, "it makes perfect sense. You need a month or two to sort out all the details so you can provide people with the best information."
That said, Marinac expects the deposits that First Citizens gains from the deal will likely prove far less risky than those that fled that bank and hastened its demise. He thinks depositors that were far above the $250,000 FDIC insurance threshold surely accounted for the biggest share of the run on the bank. Smaller depositors that are fully insured — or mostly insured — are likely those still with the bank. SVB had about $173 billion of deposits at the start of this year.
Marinac said First Citizens would have to focus heavily on retaining the SVB account holders in the near term. But he said the loans acquired would allow the company to scale back its organic loan growth efforts at a time when most banks are braced for a slower year ahead. The combination of rising interest rates, festering inflation and recent bank failures — Signature Bank in New York also was seized by regulators this month — heighten the likelihood of recession and lighter loan demand in coming quarters, Marinac said.
"They can be a lot more selective with loans," Marinac said. "We are in an economic environment where having the ability to be selective has significant benefits."
