First Republic Surges 33% in Premarket as SVB Deal Calms Investors

First Republic stock soared 33% in premarket after First Citizens BancShares agreed to purchase SVB loans and deposits.

US bank stocks are up in premarket trading Monday after the First Citizens bank said it has agreed to buy deposits and loans of the collapsed Silicon Valley Bank (SVB). First Republic Bank stock led the premarket rally, surging as high as 33%.

First Citizens Acquires SVB for up to $500m in Stock

Shares of First Republic Bank soared significantly in premarket trading Monday after the deal between First Citizens BancShares and SVB provided some relief in the banking sector following weeks of turmoil. First Republic’s stock was up 33% ahead of the market open at the time of writing, with other bank stocks, including Western Alliance and PacWest Bancorp, also in the green.

On Monday, First Citizens BancShares said it has agreed to buy deposits and loans of SVB, which was shut down by US regulators earlier this month. The Federal Deposit Insurance Corporation (FDIC), which gained control of SVB after the collapse, received equity appreciation rights in First Citizens BankShares shares with a potential value of up to $500 million under the terms of the deal.

As part of the agreement, the subsidiary First Citizens Bank & Trust Company will assume $110 billion worth of SVB assets, deposits of $56 billion, and loans of $72 billion, according to Reuters.

The North Carolina-based bank said customers would keep access to their accounts, with “the 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023,” it said in the statement. SVB’s collapse will cost its deposit insurance fund roughly $20 billion, per the FDIC estimates.

SVB Deal Restores Stability Just to a Certain Point, Analysts Say

The First Citizens-SVB deal comes around two weeks after the US Treasury and the Federal Reserve shuttered SVB in the most significant banking failure since the 2008 crisis. The intervention came after SVB, one of the vital tech lenders in the US, faced a rush of customer withdrawals following the bank’s struggles to secure funding to cover a loss from the sale of assets due to high-interest rates. Just two days later, the regulators shut down the crypto-friendly Signature Bank.

While acquiring SVB’s deposits and loans by First Citizens gave some respite to investors, it will not wholly restore stability in the banking and venture capital industries, analysts said. Redmond Wong, a market strategist at Saxo Markets, said the deal “does not add much to solve the number one issue that the U.S. banking system is now facing: deposits leaving smaller banks for larger banks or money market funds.”

Last week, data by the Fed showed that deposits at smaller US banks fell by a record-high amount after the SVB fiasco. Specifically, deposits at small banks plummeted by $119 billion to $5.46 trillion in the week ended March 15, marking the sharpest decline as a percent of overall deposits since March 2007.

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Originally Posted March 27, 2023 – First Republic Surges 33% in Premarket as SVB Deal Calms Investors

Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.