U.S. futures shot higher early Monday, with bank stocks mostly gaining after the Federal Deposit Insurance Corp. said it had agreed to the sale of troubled Silicon Valley Bank to North Carolina-based First Citizens Bank & Trust Co.
The deal may reassure investors at a time of shaken confidence in banks, though the FDIC and other regulators had already taken extraordinary steps to head off a wider banking crisis by guaranteeing that depositors in SVB and another failed U.S. bank would be able to access all of their money.
Customers of SVB will automatically become customers of First Citizens, which is headquartered in Raleigh. The 17 former branches of SVB will open as First Citizens branches Monday, the FDIC said.
Nasdaq-traded shares of First Citizen BancShares Inc. jumped 12.4% to $654.95 in premarket trading Monday. Shares in mid-sized San Francisco-based First Republic Bank, which serves a similar clientele as Silicon Valley Bank and had appeared to be facing a similar crisis, surged 24.3% in premarket trading.
European shares opened higher Monday, with German lender Commerzbank AG up 2.4% and BNP Paribas up 1.2%.
But concerns persist that higher interest rates that are squeezing lenders could increase the likelihood of a recession. Earlier this month, shares of and faith in Credit Suisse, which has its own unique set of troubles, fell so much that regulators brokered a takeover of the Swiss bank by rival UBS.
On Friday, much of the focus was on Deutsche Bank, whose stock tumbled 8.5% in Germany, though it was back up about 3.6% in early trading Monday.
“So far, regulators and lawmakers have worked together to keep the crisis under control, and they have used all the help they could to do so,” Naeem Aslam of Zaye Capital Markets said in a commentary. “This particular element is keeping the hope alive that whatever the issue was with Deutsche Bank, lawmakers are going to address it, as there is simply too much to lose if things are left alone.”
In the United States, SVB, based in Santa Clara, California, collapsed on March 10 after depositors rushed to withdraw money amid fears about the bank’s health. It was the second-largest bank collapse in U.S. history after the 2008 failure of Washington Mutual. Two days later, New York-based Signature Bank was seized by regulators in the third-largest bank failure in the U.S.
In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000, so depositors were able to access their money.
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.
After First Republic Bank came under heavy selling by panicked investors, 11 of the biggest banks in the country announced a $30 billion rescue package. The money has given First Republic a lifeline while it reportedly seeks a buyer.
The sale of Silicon Valley Bank announced late Sunday involves the sale of all deposits and loans of SVB to First Citizens Bank and Trust Co., the FDIC said.
The acquisition gives the FDIC shares in First Citizens worth $500 million. Both the FDIC and First Citizens will share in losses and the potential recovery on loans included in a loss-share agreement, the FDIC said.
The FDIC will retain about $90 billion of Silicon Valley Bank’s $167 billion in total assets, as of March 10, while First Citizens will acquire $72 billion at a discount of $16.5 billion, the FDIC said. It said it estimates Silicon Valley Bank’s failure will cost its industry-funded Deposit Insurance Fund about $20 billion.
First Citizens Bank was founded in 1898 and says it has more than $100 billion in total assets, with more than 500 branches in 21 states as well as a nationwide bank. It reported a net profit of $243 million in the last quarter. It is one of the top 20 U.S. banks and says it is the largest family-controlled bank in the country.
The managing director of the International Monetary Fund, Kristalina Georgieva, told a conference in Beijing on Sunday that risks to financial stability have risen as interest rates are raised to fight inflation. She said actions by central banks and other regulators have helped to ease strains on markets, “but uncertainty is high, which underscores the need for vigilance.”
This story was reported by The Associated Press.