Banking sector sees boost as First Citizens acquires failed SVB

Bank shares and stock markets have rebounded after United States authorities announced that a regional lender took over most of Silicon Valley Bank (SVB), whose collapse this month was the second-largest banking failure in US history.

The market rally on Monday followed weeks of concern over a potential economic collapse after SVB failed on March 10 after it experienced a bank run – a rush by depositors to withdraw their funds all at once.

The pan-European STOXX 600 Index rose 1.1 percent, with investors drawing comfort from the SVB acquisition news. European banks also rose 1.4 percent after shedding 3.8 percent on Friday, when Deutsche Bank sparked a rout in the sector.

“Many investors still don’t want to touch the banking sector for fears there is more distress to come,” said Russ Mould, investment director at AJ Bell.

“Yet for every bleak situation, there is always someone who sees an opportunity to make money, hence why we’re seeing a rise in the share price of many European banks today.”

The increase comes a day after the Federal Deposit Insurance Corporation (FDIC) announced on Sunday that the North Carolina-based First Citizens Bank was purchasing a large part of SVB’s deposits, assets and loans.

“Depositors of Silicon Valley Bridge Bank, National Association, will automatically become depositors of First–Citizens Bank & Trust Company,” it said.

FDIC, which had been trying to find a buyer for SVB, said it still holds around $90bn in the failed bank’s securities and other assets.

For its part, First Citizens said that starting on Monday, 17 former SVB branches “will begin operating as Silicon Valley Bank, a division of First Citizens Bank”.

Frank Holding Jr, chairman and CEO of First Citizens, said the SVB acquisition adds “significant scale, geographic diversity, [and] compelling digital capabilities” to the bank.

SVB, a California-based institution specialised in lending to technology startups and the venture capitalists who finance them, had invested much of its money in US government bonds, whose value fell as interest rates rose.

A second bank, New York-based Signature, also failed last month.

The US government moved quickly to respond to the crisis by seizing the two banks and guaranteeing the money of all their respective depositors, even those who were uninsured.

Last week, US Treasury Secretary Janet Yellen suggested that authorities may continue to guarantee all deposits in cases of further bank failures. “Similar actions could be warranted if smaller institutions suffered deposit runs that pose the risk of contagion,” she said.

US officials, including President Joe Biden, have repeatedly stressed that the US banking system is “sound” and stable, dismissing the prospect of a major economic collapse similar to the 2008 financial crisis.

Reverberations of the current turmoil have been felt at banks across the world, shaking depositors’ confidence in the system.

Last month, US banking giants pledged to deposit $30bn to prop up a struggling California-based lender, First Republic Bank, in a move welcomed by Washington.

Struggling Swiss lender Credit Suisse was also acquired by a rival bank, UBS, in a government-brokered deal last month.

On Friday, Germany’s largest lender, Deutsche Bank, saw its shares drop sharply before rebounding on Monday amid reassurances of its financial health.

Despite the apparent recovery, some analysts say the crisis may not be finished.

“It’s clearly not over,” Australia and New Zealand Banking Group Chief Executive Shayne Elliott said in an interview posted to the bank’s website.

“I don’t think you can sit here and say: ‘Well, that’s all done, Silicon Valley Bank and Credit Suisse and, you know, life will go back to normal.’ These things tend to roll through over a long period of time.”