First Citizens BancShares' acquisition of Silicon Valley Bank came with an unusual provision: a $70 billion line of credit, courtesy of the Federal Deposit Insurance Corp.
The financing is meant to help First Citizens meet liquidity needs that arise in the next two years as it integrates SVB into its operations, the Raleigh, North Carolina, lender said in a regulatory filing.
"This is not a typical deal term for an acquirer in these transactions to buy a failed bank," Jerry Comizio, an American University professor and former Treasury Department official, said in an email. "It really highlights the FDIC's desire to resolve this situation by providing a potential liquidity hedge against SVB's high level of uninsured deposits."
New York Community Bancorp didn't mention an FDIC line of credit in its purchase of Signature Bank, which the agency helped engineer last week, and it's unclear if any other bank has received such terms in previous transactions for failed lenders. The FDIC has been keen to avoid having their bank-rescue plans labeled bailouts and took pains on Monday to point out that SVB shareholders and bondholders haven't received any money from the agreement.
"This transaction was entered into as the least-cost to the insurance fund," an FDIC spokesman said in an emailed statement. "If First Citizens — or any bank for that matter — did not come forward, we would have had to liquidate the bank, which would have been more costly to the insurance fund than the agreement with First Citizens."
The spokesman didn't say whether a line of credit had been offered in a previous bank seizure.
First Citizens soared 52%, the most in more than 30 years, after details of its acquisition were announced. But the FDIC gets a piece of those gains. As part of the deal, the agency received equity rights in First Citizens worth as much as $500 million that were already in the money as of Monday morning. First Citizens also issued a $35 billion note to the agency as payment for the transaction.
The credit line is for five years, with the agency set to accrue interest equal to the Secured Overnight Financing Rate plus 25 basis points.
"The transaction is a 101% boost to FDIC's balance sheet, with an immediate positive benefit to tangible capital and earnings in exchange for collecting the SVB loans and integrating new deposit customers for the FDIC," Janney Montgomery Scott LLC analysts Christopher Marinac and Feddie Strickland said in a research note.
First Citizens didn't immediately respond to a request for comment.
— With assistance from Katanga Johnson and Paige Smith.
