First Citizens Bank’s meteoric rise has been fueled primarily from becoming federal regulators’ preferred acquirer of failing and collapsed financial institutions nationwide — most recently Silicon Valley Bank.
In fact, the Raleigh bank has teamed with the Federal Deposit Insurance Corp. on 21 brokered deals since 1989. That level of confidence persuaded the FDIC to choose First Citizens for perhaps its highest-profile takeover since the Great Recession.
Just days ago, the FDIC approved First Citizens paying $16.5 billion to acquire $72 billion in total assets and 17 branches from a closed Silicon Valley Bank. The deal came 16 days after the FDIC shut down Silicon Valley, which had a decided focus on the technology and startup business.
As a result, First Citizens vaults to more than $219 billion in total assets. The bank also gains its first branches in Boston, Chicago and New York City.
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“First Citizens has a proud history of growing organically and through strategic acquisitions that build our core capabilities in a careful and deliberate manner,” said Frank Holding, First Citizens’ chairman and chief executive, in a news release.
In a recent interview with cable business channel CNBC, Holding said “this is a remarkable transaction in partnership with the FDIC that should instill confidence in our deposit system, and it’s also a great example of where regulators and banks come together to protect depositors.”
Holding said First Citizens’ continuing successes in the FDIC’s bidding process is “not just the function of the quality of bid we put and the competitiveness of it, but also the strength and stability and soundness and expertise that we bring to the transition, which we think adds stability to our industry.”
Tony Plath, a retired UNC-Charlotte finance professor, said First Citizens’ management team “perfected this sort of distressed-bank deal-making and acquisition template” with the FDIC back during the 2008 banking crisis.
“Once again in 2023, they’re going back to the bank’s tried-and-true template for growing larger via financial acquisition, while at the same time creating successful private-sector solutions to the government’s problem of failed bank disposal,” he said.
The First Citizens deal has gained a series of approvals from banking industry officials and analysts.
For example, N.C. Treasurer Dale Folwell said — speaking in his role as chairman of the State Banking Commission — that the First Citizens acquisition “is a positive reflection on the conservative regulatory environment that we have established in North Carolina. I believe this cements our place as the second-leading banking center in the United States behind New York.”
Christopher Chung, the chief executive of Economic Development Partnership of North Carolina, which is focused on recruiting new businesses, thinks that the transaction will help the state.
“First Citizens will be able to shine a light on North Carolina’s excellent business climate, especially as it welcomes high-growth technology clientele coming over as part of the Silicon Valley Bank acquisition,” he said in a statement. “We see economic development potential from this deal as former Silicon Valley Bank clients begin to hear from First Citizens about our state’s many business advantages, which we hope prompts these tech firms to take a closer look at North Carolina.”
Lee Burrows Jr., vice chairman of investment banking for Atlanta-based Performance Trust Capital Partners, said Holding “is a very smart and savvy banker and First Citizens did extremely well acquiring failed banks during the Great Recession.
“I can only imagine that the FDIC made him a deal he couldn’t refuse, otherwise I cannot imagine that First Citizens would have taken all of the deposits and loans,” Burrows said. “It is too early to make any definitive statements about the math in this transaction, but one would think the math must be compelling.”
Bowman Gray IV, a local independent stockbroker, said that even though the FDIC-brokered deal occurred just 16 days after Silicon Valley’s collapse, “First Citizens waited for the proverbial flames to die down before buying what remains. This should be a solid move for First Citizens assuming there are no other hidden issues within Silicon Valley.”
The move hearkens to comparisons of Wells Fargo’s $15.1 billion takeover of a collapsing Wachovia Corp. in October 2008 and BB&T Corp’s assumption of $22 billion in total assets from a collapsed Colonial BancGroup in August 2009.
Wachovia was considered as the bluest of blue-chip stocks for its conservative financial model until it became the financial sector’s version of the canary in the coalmine for the Great Recession in late 2007. Wachovia’s stock was so prized over the decades that shareholders used it to finance charitable donations and church offerings, and to offset educational costs. Its dependable dividend provided retirees with a secure source of money outside of Social Security payments.
Even as billions of dollars in losses piled up in 2008, top Wachovia officials extolled their belief that the bank would rebound, and the stock was a buying opportunity even as it dropped sharply with the housing bubble burst.
However, after taking massive earnings hits for several quarters, Wachovia — the fourth-largest U.S. bank — faced its own demise and threatened to trigger a meltdown of the financial-services industry at the end of September 2008.
Bart Smith, the managing director and partner with Performance Trust Capital Partners, said that until the Wachovia collapse, “there was no precedent for how to handle a systemic scenario. Those events were the beginning of a much more proactive and controlled FDIC liquidation process throughout the crisis.”
With BB&T, the chance to make a major push into Florida at a perceived low risk persuaded the company to take over Colonial.
BB&T assumed all $20 billion of the failed bank’s deposits as part of an agreement brokered by the FDIC.
Colonial, which was a major provider of real estate loans in several boom-to-bust housing markets, represents the biggest bank failure of 2009.
The takeover of Colonial has proven to be the biggest risk-reward opportunity in then-BB&T’s existence since it used the acquisition to stake its first claim in Texas and expand beyond the Southeast.
Plath, the retired UNC-Charlotte professor, compared the First Citizens takeover of Silicon Valley to that of BB&T and Colonial in that they were “cases of corporate euthanasia” that put those banks “out of their misery” before things got worse.
“In each of these cases,” he explained, “the acquired bank was in a severely distressed state.”