The Manila Times

Deal to buy SVB calms bank fears

NEW YORK CITY: First Citizens Bank is buying much of Silicon Valley Bank (SVB), whose failure this month set off a chain reaction that helped rattle faith in banks around the world.

The Federal Deposit Insurance Corp. (FDIC) and other regulators had already taken extraordinary steps to head off a wider crisis by guaranteeing all depositors in SVB and another failed institution, Signature Bank, could get their money, even if they had more than the $250,000 limit insured by the FDIC.

The First Citizens deal announced late Sunday, at least initially, seemed to achieve what regulators have sought shoring up of trust in other regional banks across the country.

Stock prices strengthened for First Republic, PacWest Bancorp. and other banks that investors have spotlighted as most at risk for a sudden exodus of nervous customers, similar to the run that caused SVB’s failure.

The sale underscores that SVB’s assets have value and helps to rebuild some faith in the banking sector, investors and experts said. But they also said it does not by itself provide an immediate allclear for other banks. Restoring trust and figuring out exactly what pain other banks may ultimately feel will take more time.

“The financial system is like a boat,” said Aaron Klein, a senior fellow at the Brookings Institution and a former official at the Treasury Department. “SVB’s collapse has rocked the boat, but the ship is righting itself.”

“The news today is good, it’s a positive step forward to digging out of the hole of the collapse that SVB put us in,” he said. “But losses are substantial: $20 billion is real money, even in Washington.”

That $20 billion is referring to the loss the FDIC says its deposit insurance fund could take because of SVB’s failure. As part of the deal with First Citizens, the FDIC agreed to share in potential losses or gains coming out of some of the loans purchased from SVB.

The $20 billion would come from an FDIC fund that banks pay into instead of taxpayers. But banks could ultimately charge slightly more in fees or pay less in interest to their customers to help make up for it, Klein said.

“The question is who should bear those losses?” he said. “Should seniors get a few less interest points on their bank deposits, or should big depositors with more than $250,000 at Silicon Valley Bank be willing to lose some of their cash?”

First Citizens agreed to buy about $72 billion of SVB’s assets at a discount of $16.5 billion. About $90 billion in assets remain in FDIC’s receivership. The FDIC also received rights related to First Citizen BancShares stock that could be worth up to $500 million.

Since the banking crisis, officials from the Treasury Department to the Federal Reserve (Fed) have said they still see the system as sound and secure.

Todd Phillips, a fellow at the Roosevelt Institute and a former attorney at the FDIC, said extraordinary actions by regulators back up those statements. Besides guaranteeing deposits at SVB and Signature Bank, regulators also announced a program to allow other banks to raise cash more easily.

“What D.C. is thinking and what New York is thinking about everything that’s going on is very different,” Phillips said. “New York appears to be very concerned that there are more banks that may fail and that shareholders will be wiped out, whereas D.C. is much more concerned about the health and safety of the financial system.”

He said his general message to people is: “Your deposits will be fine. You will be fine. This really is a crisis of large institutional shareholders of banks that are worried” about losing their money.

Amanda Agati, chief investment officer of PNC Asset Management Group, looks at the banking industry’s struggles through the eyes of an investor, and she sees more pain coming. She just does not know exactly how much and from where.

“It’s highlighting increased stress in the system,” she said, and it could lead banks to lend less, which would put more pressure on the economy.

The Fed just raised interest rates again last week, and Agati said what it does going forward will likely have a greater impact on markets and the economy than which bank could be next to see its stock drop.

Customers of SVB will automatically become customers of First Citizens, which is headquartered in Raleigh, North Carolina. The 17 former branches of SVB will open as First Citizens branches Monday, the FDIC said.

New York Community Bank agreed to buy a significant chunk of Signature Bank in a $2.7-billion deal a week ago, but the search for a buyer for SVB took longer.

Foreign Business




The Manila Times