According to persons familiar with the situation, the Federal Deposit Insurance Corporation (FDIC) has hired consultants to sell the securities portfolios that the new owners of the defunct Silicon Valley Bank and Signature Bank turned down.
The portfolios are made up of low-yielding assets that the two regional banks accumulated while interest rates were almost zero, like Treasuries and US government agency-backed securities.
Given that interest rates are currently significantly higher than the yield on these assets, if First Citizens Bancshares Inc., the new owner of Silicon Valley Bank, or New York Community Bancorp Inc., which bought out Signature Bank, had assumed the assets, they would have had to incur losses.
According to regulatory filings and public assertions, the securities portfolios of Silicon Valley Bank and Signature Bank have a face value of around $90 billion and $26 billion, respectively.
The individuals spoke on condition of anonymity to share proprietary details regarding the sale process. The FDIC chose not to respond.
It’s unknown how much money the sale of the portfolios will cost the FDIC’s deposit fund. A tax on all US banks that participate in the deposit insurance programme of the FDIC replenishes the fund, which is used to insure deposits at bankrupt institutions.
The FDIC predicts the deposit fund will lose $20 billion and $2.5 billion, respectively, from the sales of Silicon Valley Bank and Signature Bank. After sales of the banks’ loan books and securities portfolios are complete, it will reveal final numbers.
While some of the loans are being sold independently, others were transferred to First Citizens and New York Community with FDIC insurance. According to Reuters this week, the FDIC has hired Newmark Group Inc. to sell the $60 billion in retained loans from Signature Bank.
On March 8, two days before it failed, Silicon Valley Bank sold $21.5 billion of its securities portfolio to cover customer withdrawals, generating a $1.8 billion loss. This provided an indication of the possible losses in the portfolio. The 10-year Treasury yield at the time was approximately 3.9%, but the portfolio’s average yield was only 1.79%.