Morning Market Brief: Tuesday, March 28, 2023

First Citizens Bank to purchase SVB

After Silicon Valley Bank (SVB) fell into receivership, fears of contagion in the financial services industry heightened. However, governments, central banks, banks and regulators stepped up efforts to support and stabilize the industry. In the U.S., First Citizens BancShares Inc. agreed to buy SVB out of receivership.

• First Citizens agreed to purchase SVB. First Citizens will buy all deposits and loans of SVB. First Citizens will purchase US$72 billion in assets for US$16.5 billion.
• The Federal Deposit Insurance Corporation (FDIC) will keep US$90 billion in securities and other assets for disposition. The FDIC will also receive up to US$500 million in equity appreciation rights of First Citizens.
• All customers of SVB will now become customers of First Citizens Bank, which will offer relief to many tech start-ups and venture capital firms.
• Well-received by investors. Investors responded positively to the news, helping to push equity markets higher to start the new trading session. Still, there is uncertainty about potential contagion and if that could push the global economy into a recession.
• The financials sector on the S&P/TSX Composite Index moved higher. Many of the problems plaguing these regional banks in the U.S. are not hindering Canadian banks. Canadian banks are managed more conservatively than their U.S. counterparts. They are well-capitalized, while most Canadians feel their deposits are safe.

Despite the purchase, there is still some uncertainty about the global financial sector. U.S. Federal Reserve Board official Neel Kashkari noted troubles in the U.S. banking system could cause a recession. With Canada’s economy so closely tied to the U.S., a recession in the U.S. could hinder economic activity in Canada. There is less concern in Canada as Canadian banks are well-capitalized and enjoy strong confidence from their clients that their deposits are safe.

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