Michael Lewitt on the FDIC sale of Silicon Valley Bank's assets

First Citizens Bank stepped up and bought Silicon Valley Bank’s deposits and loans over the weekend, taking advantage of another bank’s mismanagement and the government’s need to support the banking system.  The deal involves the purchase of ~$72 million of assets at a $16.5 billion discount while another $90 billion of securities remain in receivership for sale by the FDIC.  What this means is that First Citizens is buying SVIB’s loans and leaving long-dated Treasuries and other investments behind for the FDIC to work out over time.  The FDIC also received equity appreciation rights in First Citizens’ holding company First Citizens Bancshares (FCNCA) with a potential value of $500 million to defray some of the potential losses on the transaction.  The 17 former branches of SIVB reopened this morning as First Citizens branches. FCNCA is rallying 40% on the news.  This should turn out to be a good move by FCNCA for which its management deserves credit.

~ Michael Lewitt, "Chasing Our Tails," The Credit Strategist, March 27, 2023