Here is why America had to raise the terms to complete the SVB sale

The winning bidder for a government auction of key Silicon Valley Bank assets won several concessions to seal the deal.

First Citizens BancShares is buying SVB's $72 billion in assets for $16.5 billion, a 23% discount, according to an FDIC statement on Sunday.

The deal doubles First Citizens' assets to $219 billion, according to bank documents. The FDIC said it receives all loans and deposits from SVB as well as 17 branches.

But even after the deal closes, the FDIC remains committed to getting rid of about $90 billion in assets held in escrow from SVB. The sale did not include any investment securities, meaning the FDIC held SVB's bonds, which fell in value and contributed to the company's collapse.

The North Carolina-based bank said Monday the FDIC has agreed to a five-year loss-sharing agreement on business loans that First Citizens supports, as well as a $70 billion line of credit in case customers withdraw more deposits.

First Citizens said on an investor call Monday that the FDIC is also providing First Citizens with a five-year, $35 billion loan at a prime interest rate of 3.5% to help fund the OK.

In return, the FDIC received stock in the bank worth up to $500 million.

In total, SVB's failure would cost the FDIC's deposit insurance fund about $20 billion, the agency said. That made SVB's collapse the costliest in the history of the deposit insurance fund, which began operations in 1934. The costs will be covered by higher fees from U.S. banks that have FDIC protection. 

First Citizens shares rose 55% in Monday trading.

Lack of interest

According to Mark Williams, a former Fed examiner who teaches finance at Boston University, the terms of the deal can be interpreted as lukewarm interest in SVB's assets.

The government seized SVB on March 10 and then extended the duration of its assets. The bid ultimately went to First Citizens and Valley National Bancorp, Bloomberg reported last week.

"The deal is over," Williams said. “I think the longer the FDIC realizes, the more rebates they need to attract people.

An ongoing sale process by another troubled lender could also dampen interest in SVB's assets, according to a person familiar with the matter Potential buyers have delayed SVB's auction as they hope to bid for First Republic Bank, they want more.

After the collapse of SVB this month, depositors worried about their unsecured holdings withdrew billions of dollars in cash from smaller banks and put it into banks including JP Morgan

Big Union

To offset cash outflows, JPMorgan Chase and 10 other banks deposited $30 billion with First Republic, but its shares continued to fall, prompting the bank to consider strategic options.

First Republic shares rose along with other bank stocks on Monday.

First Citizens said in a press release that since 2009 it has completed more FDIC brokerage bank acquisitions than any other lender. The bank's assets grew to more than $200 billion after the deal, from $109 billion at the end of the year, and it has more than 550 branches in 23 states.

First Citizens CEO Frank Holding told analysts on Monday, "Let me say that this acquisition is financially, strategically and operationally attractive." a merger takes place.

But the bank's chief financial officer also said he believed some SVB customers would come back and bring back the money they were holding as it brought stability.

Williams said the deal continued the bank's record of buying up troubled lenders at a discount.

"They're stepping into the big leagues with this deal," he said. “When other banks see the fire, they run. This bank runs towards it.

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