First Citizens: who is the new owner of SVB’s skeleton?
There is a 10-hour time difference between Melbourne in Australia and London. Thus it is that as we are approaching bedtime here, our Aussie friends are already tooling up for the new day. One of my last reads before turning in tends to be the brief morning comment sent out by my old mate and mucker, Alex Moffatt of J Palmer & Sons in Melbourne. Although now a multi-asset wealth manager, his background is in rates and bonds so I know that I can rely on him for a pragmatic take on how the US markets had closed and what he expects of the coming day. None of the customary hype and optimism of more conventional equity geeks whose base case seems to be that today presents the best buying opportunity since yesterday.
This morning “Moff” simply summarises what Down Under is the overnight news – under the headline of “Markets are calming down…for now” – as follows: “The American bourses have just closed for normal daytime trade with the Dow up by nearly 200 points, 0.6%, the S&P500 up by 0.2% and the Nasdaq dragging its heels closing down by 0.5%.
“News that the skeleton of Silicon Valley bank has been sold to First Citizens Bancshares gave investors heart. The Federal Deposit Insurance Corporation (FDIC) announced the deal in which First Citizens bought circa US$72 billion of Silicon Valley Bank’s assets at a discount of US$16.5 billion. Silicon Valley Bank’s branches will all be renamed First Citizens with the changeover expected to happen quickly. Deutsche Bank shares recovered about 6% overnight as investors weighed the chances of another disaster.
“For those trading in the debt markets, it would not have gone unnoticed that the cost of insuring Deutsche’s debt (credit default swaps) has skyrocketed in recent days. Deutsche’s additional tier one paper has also been sold off sharply.”
It tells you everything you need to know, other than what First Citizens BancShares actually is. There must be something in the water in North Carolina, home of First Citizens. It is based in Raleigh. Up the road to the Northwest is Winston Salem where Wachovia had once been at home until it was subsumed by Charlotte-based First Union and ultimately by Wells Fargo, and down the road to the Southwest lies Charlotte, home of NCNB, later NationsBank which in turn had acquired the San Francisco based Bank of America which, after having changed its name, became America’s largest deposit taker. I worked for a goodly while for Bank of America and when I first joined, the principal trading floor was still in Charlotte. Only later did the bank close down the old BofA’s trading hub in California and move it, along with many of the Charlotte bunch, to 9, West 57th in New York. The move to consolidate was completed only a few weeks before the tragic events of 9/11.
Those of us who had come from outside of the traditional North Carolina base were always aware that at the head of the business sat not Wall Street trained bankers but a cabal of what we referred to as “good ole boys”, led by Ken Lewis with his over whitened-teeth and perma-tan.
During the GFC, Lewis’s last major act chairman and CEO was to snap up the rapidly failing Merrill Lynch which was perchance also the country’s premier retail broker. Taking over the investment banking activities of ML was to Lewis a necessary evil if he wanted to get his grubby mits on the huge retail network and whist flashing his cheque book at Merrill Lynch, he left Lehman Brothers standing at the altar. We came very close to BofA rescuing Lehman and if it had done, we would today instead most probably be talking of the catastrophic collapse of Merrill Lynch.
First Union and NationsBank had both grown by acquisition. At the time at which First Union, now called Wachovia, had got itself into deep trouble in the variable rate mortgage market and had been rescued by Wells Fargo, it was America’s fourth largest deposit taker. Yes, North Carolina was home to two of the country’s four largest banks. And North Carolina is where First Citizens is to be found.
Much is being written and spoken about with respect to the problems and issues concerning corporate governance in general and that of banks in particular. Then up pops First Citizens., which is to all intents and purposes a family business. It is in the hands of the third generation of the Holding family. Frank B Holding is Chairman and CEO. Both Vice Chairman Hope Holding Bryant and President Peter Bristow are close family. At a time when diversity at board level is right up there in the headlines, the FDIC is selling the remnants of Silicon Valley Bank to a firm which is anything but. More “good ole boys”?
With SVB’s business strapped on, First Citizens becomes the 15th largest bank in America and in balance sheet terms larger than either Morgan Stanley or American Express. Well, beggars can’t be choosers and the FDIC is not here to run banks. And don’t scoff. The Holdings have built their bank from a local, to a regional to a super-regional by carefully and assiduously buying failing or defunct banks and although the move on Silicon Valley Bank is by far their largest, they look sound and experienced. But then so did Wachovia until it burnt its fingers on subprime mortgage lender Golden West which in effect took it down.
For the moment, however, the worst of the fears concerning a burgeoning systemic crisis within the banking sector would seem to have been allayed to which Monday’s relative calm in markets would attest. Deutsche Bank, in the aftermath of CS’s having tripped up very much in the crosshairs of short-sellers, now also looks to back out of intensive care. Deutsche and Credit Suisse suffered very similar fates when it came to being raped and pillaged by hired gun bankers although as I had noted less than a week ago, Deutsche had in the hands of Christian Sewing already begun to focus on rebuilding its domestic banking franchise which by dint of if its being German is potentially many times larger than that which would have been available to Credit Suisse.
Write to us with your comments to be considered for publication at letters@reaction.life