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First Citizens To Acquire Silicon Valley Bank (techcrunch.com) 68

Posted by msmash from the closer-look dept.
First Citizens has agreed to buy a $72 billion chunk of Silicon Valley Bridge Bank, the California lender formerly known as Silicon Valley Bank that was taken over by the FDIC two weeks ago after depositors, in a crisis of confidence, made a run on it. SVB served as lifeblood to thousands of startups before its collapse, the biggest in U.S. banking in years, sent shockwaves through the financial sector. From a report: Seventeen former branches of Silicon Valley Bank will open as First Citizens Bank later today, the FDIC said. The U.S. Federal Deposit Insurance Corporation said in a statement that it estimates the failure will cost its Deposit Insurance Fund about $20 billion. It will provide an exact figure when the deal and FDIC receivership conclude. There is significant money at stake here, but with depositors and confidence continuing to be shaky, it's taken weeks to get a deal done and each passing day has arguably devalued the assets a little bit. The FDIC has previously run two unsuccessful auction processes for Silicon Valley Bridge Bank , as it had to modify what it was selling, including breaking up the assets. This deal with First Citizens includes purchase deposits and loans, worth about $72 billion, at a discount of $16.5 billion.
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First Citizens To Acquire Silicon Valley Bank More

First Citizens To Acquire Silicon Valley Bank

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  • Especially to protect uninsured (rich) depositors. I've argued throughout the SVB fiasco that we need to wait and see the final numbers before passing judgment. Given that SVB had about $47B of uninsured deposits (based on Google search), it seems that's a pure giveaway of $20B to the least needy. Talk about stealing from the poor and giving to the rich.

    • It's about 10% of SVB's total deposits. Higher than I would have expected, but not insane; I thought about 5%.

      It is really a no-win situation. Do you stick with the 250k base and return ~85% of the balance? Based on the initial numbers it would have been a 95% return on the balance.

      A better deposit insurance system is needed for businesses than what the FDIC can offer... not sure why it hasn't been created yet.

      • It wouldn't have been 85% to 95% for everybody. The insured deposits would have been 100% and the uninsured would have (essentially) been zero percent! Again assuming 150B of insured deposits and 50B of uninsured deposits which are the best numbers I could find (but doesn't mean they are right).

        There is private deposit insurance available. During the pandemic, the FDIC insured payroll accounts without limit.

        Now, in fairness, the FDIC also has to look at the cost of *not* making depositors whole whi

        • Re: (Score:1)

          by Anonymous Coward

          SVB needed to act decisively 7-8 months ago, once it was apparent that interest rates may go up for a while. The risk was obvious even without a chief risk officer on hand (the last one resigned back in April) putting together a pretty spreadsheet -- a numerate person could literally figure out the problem was dire and growing on a napkin. But at least the CEO made sure he got his bonuses while the ship slipped beneath the waves, including getting a fat bonus 2 hours before SVB closed its door forever.

          • Re: (Score:1)

            by Anonymous Coward
            The risk of a bank run? One started by the man at the top of the pyramid of your VC clientele? That was an obvious risk?

            I don't think there could be a clearer indication of how you don't understand this stuff than your post. It was by no means some market risk that took down SVB, it was Peter Thiel's bank run in an environment where some current resale values of long-term assets were depressed. It's particularly important to note the actual assets were 100% identical before and after the incident- ther

        • Re:That's a pretty big cost (Score:4, Informative)

          by jbengt ( 874751 ) on Monday March 27, 2023 @11:11AM (#63403336)

          It wouldn't have been 85% to 95% for everybody. The insured deposits would have been 100% . . .

          That's why aaarrrgggh wrote "stick with the 250k base and return ~85% of the balanceof the

          . . . and the uninsured would have (essentially) been zero percent!

          No depositor was totally uninsured, and if the shortfall is limited to a little over the $20 billion cost of this deal estimated in TFA, the amount of the underinsured accounts over $250K would be reimbursed at ~85% without a "bailout".

        • Please start thinking. All of SVBâ(TM)s loans to customers have to be paid back, and that money is very close to paying all deposits. Insurance or not, they would have got back 85 to 90% at least.

        • Re: (Score:2)

          by kenh ( 9056 )

          Uninsured deposits would have fought over the scraps - they'd get something, just not 100%.

          The issue was a $20BN exposure with 1.1% ten year treasuries. The gov't should have just bought them back at face value, then all the depositors would be whole.

          • And how would the government do that? By issuing new ten-year treasuries at 4.5% which would have cost the government an extra $20BN in interest. Great idea! It's like a perpetual motion machine but with money!

      • Extended FDIC insurance (Score:5, Informative)

        by virtig01 ( 414328 ) on Monday March 27, 2023 @11:27AM (#63403376)

        A better deposit insurance system is needed for businesses than what the FDIC can offer... not sure why it hasn't been created yet.

        It does exist; just search for "extended fdic insurance".

        Some examples:

        Depositors Insurance Fund [difxs.com]
        Extended FDIC insurance [americandeposits.com]
        Wintrust MaxSafe [wintrust.com]

        • Re: (Score:2)

          by Cyberax ( 705495 )

          It does exist; just search for "extended fdic insurance".

          It doesn't. There is no such thing as "extended FDIC insurance". There are companies that spread out deposits over multiple small banks, but these kinds of services are shit. E.g. if you need to make a $500k payment, the service will have to move money out of smaller banks first and only then can you make a payment.

          • Re: (Score:1)

            by Anonymous Coward
            Right. I can design my own free lottery-like contest and call up Lloyd's to insure against anyone's number matching and having to pay out, but insuring a large bank deposit is simply beyond their expertise. If only we could come up with financial products that might do the same... we should call them something like "derivatives" because we'd have their value derive from something indirect, like the continued solvency of a bank. Or we could group together some large-asset-owners into a managed account th
        • This is not extended insurance. It spreads your deposit into multiple banks. You lose liquidity. It is not worth the hassle.

          FDIC currently has a step function. 100% project up to 250K. All deposits over 250K are uninsured.

          It can easily insure 100% upto 250K, 99% up to 1 milion, 98% up to 5 million, 97% upto 10 million etc with small changes to the premium.

          Or it can offer a direct additional insurance to any depositor for sums over 250K and the depositors pays the premium.

          Or FDIC can issue simple cra

      • "A better deposit insurance system is needed for businesses than what the FDIC can offer"

        The last time bank depositors were not made whole was IndyMac in 2008. I have been unable to find out the time before that.

        Sounds like it's doing pretty good, actually.

        • I'm really referring to a very small subset of bank accounts needing something. My company (~50 people) has about $2 million in the bank at any point in time, along with a line of credit for another $1 million. We are not a rare occurence or anything. We do have money split across a few banks, but our primary bank has the bulk of it-- it's a requirement of the line of credit. We could handle a 10% loss on the money, but that would be a pretty painful hit-- management would need to defer 30% salary for 3

          • Re: (Score:2)

            by kenh ( 9056 )

            $250K FDIC insurance is not the only game in town, maybe don't deposit $2M in the local bank with three branches and *hope* the bank never has a problem? Major banks offer insurance for significant deposits, the problem is insurance costs money, so either you get reduced interest rate or the customer is charged a fee to cover the balance.

            I remember awhile ago (3-4 years?) when a bank wanted to charge customers for large cash deposits, and everyone roundly mocked the notion that a bank would charge a fee for

      • Re: (Score:2)

        by kenh ( 9056 )

        No, the current system is fine. The issue is the bank, SVB, chose not to seek outside/private deposit insurance leaving institutional depositors each with hundred million dollar deposits unprotected.

        Better established banks offer insured deposits of any size - the government-managed FDIC insurance is not the coverage available.

        The fundamental mistake SVB made was buying $20BN in 1.1% ten-year bonds, whose value tanked when interest rates went up.

        Then there was a small run on deposits, which triggered the li

    • Comment removed (Score:5, Informative)

      by account_deleted ( 4530225 ) on Monday March 27, 2023 @10:41AM (#63403232)
      Comment removed based on user account deletion

      • Re: (Score:2)

        by kenh ( 9056 )

        They can pick a bank that insures deposits over $250K - that is an option.

    • Re:That's a pretty big cost (Score:5, Informative)

      by MachineShedFred ( 621896 ) on Monday March 27, 2023 @11:29AM (#63403386) Journal

      Businesses aren't necessarily "rich" depositors, but rather depositors that require a good chunk of liquidity at any given moment - you can't pay your payroll on the business Amex.

      We had one of our vendors send us an email saying that we needed to set up our automatic payments again because they were a SVB customer and they didn't want us paying our invoices into a failed bank, so they hastily had to set up another account somewhere to route payments to it when this all went down.

      Do they deserve to not make payroll for their employees because SVB's executive leadership shit the bed on their responsibility to keep the balance sheet in the green?

      And what knock-on effects would that cause through the economy, if there are many businesses in the same scenario?

      It's real easy to have a populist gripe about rich people, but remember that businesses that not-rich people work for also have bank accounts, and it would be very easy for those account balances to go over $250k if the business has enough employees and revenue.

      • Re: (Score:2)

        by DarkOx ( 621550 )

        Bunk

        If your business is big enough you need more than 250k working capital, its big enough to do some treasury management.

        It is NOT difficult or expense to move money between banking institutions on a daily basis to manage your deposit risk. Maybe what we have here is a case against the whole venture cap system.

        You have companies that got huge capital injections and are now playing with big piles of money but without the people and know how to manage it. A solid argument for why organic growth might be bet

        • Re:That's a pretty big cost (Score:4, Insightful)

          by Midnight_Falcon ( 2432802 ) on Monday March 27, 2023 @02:46PM (#63404050)

          Bunk

          If your business is big enough you need more than 250k working capital, its big enough to do some treasury management.

          It is NOT difficult or expense to move money between banking institutions on a daily basis to manage your deposit risk. Maybe what we have here is a case against the whole venture cap system.

          Dude, have you ever run or managed a business with significant finances -- like over 20 employees? At the scale of 100+ employees, $250k doesn't get you a single payroll. With 20 employees and $250k in working capital per month (approx for a startup/tech company/service business even..) you have to add one headcount for about $100-$150k to do the treasury management you're talking about -- at a stage when most companies don't even have a full time finance person at all.
          At 100 headcount,NET30/NET60 etc terms for invoices mean you probably need $500-$1.0 mil in working capital, which will fluctuate as bills get paid during the month. Having this spread across multiple accounts/institutions creates a lot of work for accounting and increases the risk of making accounting errors. It's almost a full time job to do this -- basically a job for a Controller -- when you get into 100+ headcount etc. The other cost is if you consolidate your funds, you get a lot better interest rates. Shoving $200k in various accounts will give you a lower rate than putting your $2MM in working capital into an interest-bearing account.

          It's also a common practice for subsidiary companies to sweep money up to the larger parent/holding company who can invest it at even better interest rates, since there's more money. That extra 1-2% interest on millions of dollars adds up. So yeah, it was quite rational for accountants to pile money into these banks and get better incentivized rates rather than essentially lose money to get better insurance against a risk that didn't seem very likely.

        • By my math, $250k per pay period, with 26 pay periods per year, that would be $6.5 million in annual salary. If you employ mostly engineers, that's probably about 50 employees. Not a mom-and-pop takeout restaurant, but definitely not a large company.

        • You must have only worked for large organizations, because it's pretty clear that you don't know what you're talking about here.

          250k working capital per month is like 20 employees that make a decent salary. You want to now burn one of those headcount on having a guy there just to play a shell game of moving money around between accounts, in case there's an extremely low probability event such as a bank failure?

    • Re: That's a pretty big cost (Score:4, Informative)

      by gnasher719 ( 869701 ) on Monday March 27, 2023 @12:01PM (#63403492)
      You seem to think that SVB are bankrupt. They are not. They have lots of outstanding loans that people will have to pay back. The money was always there (mostly) just not there right now.
      • In previous posts, I indicated that SVB might not be bankrupt as others seemed to be assuming. But the fact that the FDIC had to pay $20B shows that SVB was, indeed, bankrupt! People do not have to pay back outstanding loans. They usually do so as it's in their best interest as long as they have the means. A depositor who gets all their money back five years from now but no interest in it whatsoever is worse off than a depositor who gets 85% of their money back today. The depositor who gets 85% today c

        • Re: (Score:2)

          by kenh ( 9056 )

          The $20BN was likely a buyback of $20BN in ten year 1.1% treasury bonds the bank held. Now they sold $72BN of bank assets for $16BN, what a sweetheart deal for the buyer!

          • What? They sold $72B of assets at a $16.5B discount which seems pretty reasonable given the relatively undesirability of those assets. The FDIC had trouble finding any buyers at all. TFS (and TFA) are pretty awful. The assets clearly aren't worth $72B (as proven by the fact that nobody would pay near that price) so I presume that means a *face value* of $72B or the assets were sold and $0.77 on the dollar. If these were assets that SVB purchased at face value, the bank was even more poorly run that ori

      • True. The difference between insolvent and illiquid is often glossed over.

        Farmers are often land rich and cash poor. Same idea.

      • Re: (Score:2)

        by kenh ( 9056 )

        SVB over-invested in 1.1% treasuries, and when interest rates went up, the liquidity of those treasuries eroded to maybe a 25% haircut, worth 75 cents on the dollar.

        That only became an issue when there was a small run on the bank by a few large depositors that caused the bank to redeem some of those treasuries at a significant discount, which raised a huge flag and the regulators stepped in.

    • Especially to protect uninsured (rich) depositors. I've argued throughout the SVB fiasco that we need to wait and see the final numbers before passing judgment. Given that SVB had about $47B of uninsured deposits (based on Google search), it seems that's a pure giveaway of $20B to the least needy. Talk about stealing from the poor and giving to the rich.

      I agree with "we need to wait and see the final numbers before passing judgment.".

    • The uninsured depositors include businesses that have accounts payable and payrolls.

      Maybe the FDIC needs to fully insure checking deposits and keep the $250,000 limit for savings and CDs. There is a difference between money I need in the next month and emergency money I might need (savings account) and longer term investments (CDs). The latter two I have time to fuss around with multiple banks if need be.

      Payroll out of one bank, accounts payable out of another, with accounts receivable going into one or the

      • The FDIC insured payroll accounts to no maximum during the pandemic. I think it was a particularly bad choice to end that program.

        • Re: (Score:2)

          by HiThere ( 15173 )

          That's a problem. No-limit insurance NEEDS no limit funding. A bad idea. What they should do instead is offer insurance with scalable funding, i.e. the more insurance you want the more you have to pay for it. (Just like ordinary insurance.) And offer that ON TOP OF the current insurance. And allow it to be purchased either by the bank or by the depositors. In addition to providing insurance, this should be a metric used in deciding which banks needed closer scrutiny.

          • It wasn't no-limit insurance, it was insurance of payroll accounts without limit. Payroll accounts hold large amounts of money for very limited amounts of time. They aren't money-makers for banks and might even be money-losers. The money that flows into the payroll account doesn't get invested, it just gets held. My guess it that the FDIC would never pay out a cent on that and it would reduce the risk of bank runs.

    • I'm going to start a business called Florida Man, and get massive amounts of money. That way, the next headline will be: Florida Man Acquires Silicon Valley Bank. And everyone won't know what to think, they'll just be confused.

  • Yeah and that interview on CNBC this morning.... (Score:4, Informative)

    by aldousd666 ( 640240 ) on Monday March 27, 2023 @10:31AM (#63403194) Journal
    Frank Holding was on CNBC this morning. He said the words "Stability" and "Safety" about 10000 times in the 10 minute spot. Almost as if he were just trying to say that so we all thought that... He was all forced smiles and forced laughter, but he slipped several times. You can see that he's scared shizzless about this whole deal, perhaps not just for his own bank.
    • Of course he's scared. The whole banking system would collapse if we all collectively tried to pull out at the same time. It's that way as a matter of fact due to fractional reserve lending system that modern banking is based on. Even though his own bank might not be in any kind of trouble, it could still be destroyed if everyone panics and tries to pull their money out at the same time.

      • Re: (Score:3)

        by HiThere ( 15173 )

        That's been true since banking started. And it has collapsed several times. We don't know of a way around the problem. Gold doesn't work. At one point I (have seriously) proposed (to friends) the "monocrystaline silicon standard". This would have the advantage that it was a useful consumable that could be stored indefinitely, and you could make more by putting in additional effort. It could collapse, however, if some new technology made silicon chips obsolete.

        The current system depends on the power of

        • Re: (Score:2)

          by kenh ( 9056 )

          At a certain level, all banking is digital currency - we don't roll pallets of greenbacksbetween banks to cover check deposits...

  • Security theater, financial sector edition (Score:3, Interesting)

    by DeplorableCodeMonkey ( 4828467 ) on Monday March 27, 2023 @10:46AM (#63403256)

    They want you to feel safe and go home, and ignore the nearly 200 other banks [vice.com] that are in the same position to one degree or another.

    Major US banks are also sitting on $1.7T of unrealized losses [fortune.com].

    When COVID hit in 2020, all bets were off for the future of our financial system because Congress and regulators removed the final reserve requirements. We don't have fractional reserve banking, we have "no reserve banking." There is no longer an effective legal requirement to maintain any liquidity at all. That was done because our political class was terrified of what would happen if the COVID lockdowns stalled the economic engine too much, but they didn't realize their cure was even worse than what they feared as it set the stage for systemic failure even the Fed can't stop.

    If you're a retail normie, you should be quietly withdrawing as much of your savings as you can in the form of physical cash and precious metals. In 2026, most of the federal debt is going to have to be refinanced at rates that are substantially higher than when it was initially lent. The federal government and Fed will not be able to save you this time.

    Right now, the most rational thing for the federal government to be doing isn't bailing out banks but red lining the economic engine to build new factories ready to go for the collapse so that when a systematic reset a la Germany after WWII is required, we at least have the tools in place to mass employ people in wealth-producing jobs.

    • Right now, the most rational thing for the federal government to be doing isn't bailing out banks but red lining the economic engine to build new factories ready to go for the collapse so that when a systematic reset a la Germany after WWII is required, we at least have the tools in place to mass employ people in wealth-producing jobs.

      The fact that you believe our federal government capable of doing anything this rational tells me you haven't been paying attention at all. I'm not sure if anyone in the chain is making real decisions anymore. If so, it's out of the public eye. Our government acts either as if it's completely disconnected from reality, or its only connection to our reality is in the form of manipulation to funnel more wealth to those who already have plenty, while stealing more wealth from those with just enough to make tho

      • The fact that you believe our federal government capable of doing anything this rational

        To be fair, he did say only that would be the most rational thing, not that he thought in any way that is what would happen. :-)

    • Major US banks are also sitting on $1.7T of unrealized losses [fortune.com].

      From the author: https://twitter.com/AlexiSavov... [twitter.com]

      1. In a recent note with @idrechs and @schnabl_econ, we estimated banks’ unrealized losses on loans and securities at about $1.75 trillion. We argued they are at least partly offset by gains on the deposit franchise. We estimate these gains in a new note: https://t.co/88m5ikoFcn [t.co]
      2. Tl;dr: The deposit franchise is hard to value because it's intangible. We estimate that under plausible assumptions as of Feb 2023 its value had risen by a very similar amount to the unrealized losses on loans and securities. The net loss to bank equity was thus quite small.

    • Re:Security theater, financial sector edition (Score:4, Interesting)

      by Mspangler ( 770054 ) on Monday March 27, 2023 @12:55PM (#63403716)

      Paper losses are irrelevant unless you have to sell. The bonds will return their face value at term, and tou will get the coupons on schedule.

      SVB's problem is they had to sell. Then they lost money, dropped beneath the capital requirements, and the FDIC had to shut them down.

      If the US were to default on its bonds then it all comes apart and your advice would apply. Only the classic investment hedges would survive, food, booze, spices, aurum, argentum, and plumbum, the latter preferably alloyed with stibium and a bit of stannum. I did say the classics :-).

      • Re: (Score:2)

        by kenh ( 9056 )

        They had $20 BN in 1.1% ten year treasuries, and they were forced to liquidate them and realize the losses incurred by selling into a market where Treasuries are now paying 3-4% interest.

        They never should have bought those treasuries, assuming interest rates would stay at near zero for TEN YEARS. The should have bought the much shorter-term 1% treasuries...

  • That's where MY money is!

    Damn, First Citizens; I wish you'd checked with me first!

    • And that is exactly what a lot of banks that passed on the previous auctions feared - if we buy this toxic shit and our customers get wind, they might start a run on us to flee the toxicity.

      The last time this happened, it was Chase that bought Washington Mutual and Chase is so damn big and already had a government bailout secured so nobody moved. It's a much smaller bank without any legislative TARP-like action this time, so let's see if the no-bailout guys were right.

    • They are still in the process of digesting CIT Bank and now they are taking this on. Heh...

    • Re: (Score:2)

      by kenh ( 9056 )

      Your bank just bought $72BN in assets for $16BN, what are you worried about? You and got a bargain!

  • In my country, when two or more banks fail in rapid succesion (Silicon Valey bank + signature bank in this case) if the conditios are right after the government intervenes the banks, the failed banks are "shotgun wed". That way, assets and liablities, as well a geographic coverage are more diversified. Sometimes, this is enough so that the banks can come out of the rough patch without a Piecemeal sale or outright bankrupcy

    The latest case (in my country) was: banco confederado + Bolivar banco + Central Banc

    • They did. This is a shotgun wedding.
    • To clarify: First Citizens does not want to buy toxic assets from a failing bank. The FDIC and the Fed met with a bunch of heads of banks and they decide who they are going to make bite the bullet. FC won the straw poll. Now, it's not all guns, the Fed and FDIC probably also offer lots of incentives, backstops, and other special deals as a part of this, but ultimately this means FC shareholders are in some ways 'bag holders' for SVB's liabilities. In theory, they only take on the 'good assets' and leave t

      • Re: (Score:2)

        by HiThere ( 15173 )

        IIUC, that wouldn't work in this case. Different states have different Banks, and only SOME banks are inter-state. Even then usually only to a few states. (This may not be true anymore. I'm relying on memories several decades old.) But if it *is* true SVB and signature whatever couldn't have merged.

  • This fiasco is straight out of Sneakers (Score:5, Insightful)

    by smooth wombat ( 796938 ) on Monday March 27, 2023 @12:52PM (#63403700) Journal
    Anyone who has seen the movie Sneakers [imdb.com] knows how great it is. It still holds up after three decades.

    This fiasco with SVB is exactly what was discussed when Bishop meets his old friend Cosmo:

    Cosmo: In prison I learned that everything in this world, including money, operates not on reality...

    Bishop: ...but the perception of reality.

    Cosmo: Posit: people think a bank might be financially shaky.

    Bishop: Consequence: people start to withdraw their money.

    Cosmo: Result: pretty soon it is financially shaky.

    Bishop: Conclusion: you can make banks fail.

    The bank itself wasn't all that bad off, but when people perceived it had problems they withdrew their money which then created the problem.

  • HSBC (Score:1)

    by 0xG ( 712423 )
    I seem to recall reading here how HSBC bought it for a dollar. Now this?

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