Large portions of Silicon Valley Bank's deposits and loans found buyers on Monday, which helped stabilize the fragile markets that had been shaken by concerns about a credit crunch and systemic bank stress.
In exchange for purchasing all of SVB's loans and deposits, First Citizens BancShares Inc FCNCA.O provided the Federal Deposit Insurance Corp equity appreciation rights in the company's stock worth up to $500 million, the FDIC said in a statement.
On Monday, 17 former SVB locations will become First Citizen locations. First Citizen purchases SVB assets worth roughly $72 billion at a discount of $16.5 billion, while the FDIC estimates that SVB's failure will cost the deposit insurance fund about $20 billion.
First Citizens, a firm situated in North Carolina, stated in a statement that it did not purchase any further loans or assets from SVB Financial Group, the previous parent company of Silicon Valley Bank.
The deal has provided markets with some relief since it was the first weekend in a number of weeks without reports of new bank failures, rescue deals, or urgent government assistance to restore trust.
The bigger difficulty is insuring deposits at all those other (regional) banks, said IG Markets analyst Tony Sycamore in Sydney. "You sweep Silicon Valley off to another buyer, which is good," he added.
"It’s a little bit of calm before the next storm."
Indicators of financial market stress were flashing at the end of last week, and Germany's largest lender, Deutsche Bank DBKGn.DE, was under fire. On Friday, its shares fell by 8.5%, and the cost of insuring its bonds against failure increased significantly.
On Monday, bank shares in Asia were mixed – steady in Australia .AXFJ and Tokyo .IBNKS.T but slipping in Hong Kong .HSCIF, where Standard Chartered 2888.HK shares fell 4%.
S&P 500 futures ESc1 and STXEc1 both increased by 0.5% and 1%, respectively.
Little more than two weeks after SVB's collapse, the effects can be felt all over the world. U.S. depositors are moving to larger cousins from smaller cousins as a result of the confidence blow, and Credit Suisse this week was obliged to join rival UBS.
The U.S. KBW regional bank index and the Stoxx index of European bank shares are both down significantly in March.
Investors are nervous about what may happen next after KRX lost 21%.
In an interview that was published on the bank's website, Australia and New Zealand Banking Group Chief Executive Shayne Elliott stated that the situation was "clearly not over" and warned that it would worsen into a more serious financial catastrophe.
Elliott said that it was impossible to say, "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."
Questions have been raised about whether major central banks will continue to pursue aggressive interest rate hikes to control inflation and whether tighter lending will harm the global economy in light of the abrupt increase in tensions for banks.
Credit default swaps, or the price of insurance against defaults, are uncomfortably high in Europe and bank bonds are under pressure. Data from S&P Global Market Intelligence showed that on Friday, Deutsche Bank's five-year CDS reached its highest level since late 2018.
Focus is on depositors' confidence in regional institutions, which may be harmed by an SVB sale. In the US, where flows into money market funds have increased by more than $300 billion in the past month to a record-high $5.1 trillion, this confidence has increased significantly.
After searching for a buyer for several weeks and the FDIC requesting separate offers for SVB Private and SVB, the SBV sale finally materialized.
The FDIC still has securities for sale worth almost $90 billion, according to the report. First Citizens stated that it plans to expand in California more quickly and wants to build on SVB's venture capital operation.
According to Rabobank analyst Michael Every, "Effectively you’re going to get a combination of carrots, sticks, and acronyms in order to ensure you get the outcome you want and that allows (authorities) to still use interest rates to combat inflation"
"This seems to be part and parcel of that."
By fLEXI tEAM