First Citizens Bancshares (NASDAQ: FCNCA) stock is up $165 premarket Monday morning - which is a pretty good rise in any stock price. The percentage is only 27% though, FCNCA starting from an unfashionably high point. The reason is that First Citizens was able to make the mooted deal with the FDIC as to the resolution of the Silicon Valley Bank failure. First Citizens now owns Silicon Valley but minus all the bits that caused the problems and the bankruptcy. Which, when we think about it, seems sensible, why allow a second bank to go under by just transferring the problems that caused the first failure?
The FDIC First Citizens' announcement says that the bad parts of Silicon Valley remain with the FDIC. That's the $90 billion portfolio of bonds and assets that are currently underwater and which were the cause of SIVB losing its capital base. Those can be held to maturity by the FDIC and that appears as an opportunity loss, not a crystalised one. Even so it looks like the total loss here will be about $20 billion and that has to be covered by the insurance premiums paid by all other banks across the American economy.
First Citizen's Bancshare stock price from NASDAQWhat FCNCA has bought is the buildings, obviously enough, some $72 billion of the assets of the failed bank plus the deposit book. They've paid a discount of some $16.5 billion to book value. The 17 branches begin operating as First Citizens as of Monday.
This is a useful thing to recall about bank failures - about all corporate failures in fact. The actual assets of the business have not been destroyed, Here there are still deposits, still loans out there, still skilled people, buildings for them to work in and so on. What has actually failed is the corporate wrapper for those assets. So, that's the process of bankruptcy, sorting through those assets for those which still have value and transferring them to where they can be usefully used. We just do it faster for banks than we do other types of company because of the risk of that deposit base following away.
That is, it's Silicon Valley Bank which has failed, not the idea of a bank in Silicon Valley.