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First Citizens Bank this week will show what’s happening with Silicon Valley Bank, the failed institution that First Citizens acquired from regulators in March, during the Raleigh bank's first earnings call since the deal was struck in March.
First Citizens (Nasdaq: FCNCA) posts its results for the quarter ending March 31 on Wednesday, which means analysts will be able to see behind the curtain. It comes at a pivotal time for the financial industry after three bank failures and a failed mega merger put markets on edge.
Brady Gailey, an analyst with Keefe, Bruyette & Woods, said First Citizens' earnings report will be the first chance for shareholders to see the impact of the SVB fallout. "We’ll be able to tangibly see some of the results,” he said. “First Citizens will give some guidance on what this new pro forma company looks like, so there will be a lot of attention and a lot of focus.”
Industry watchers say they won’t just be looking at the numbers. They’ll really be looking at what the new SVB looks like.
The stakes are high, said David Pierce, managing director for GPS Capital Markets. SVB had an important niche as the “best bank at lending cash to risky businesses."
“Nobody was on the edge like Silicon Valley Bank,” Pierce said. “They were really the leaders.”
Without SVB, there’s a funding gap for startup companies – as they don’t all fit the model customer template for a traditional institution. Pierce said he hopes to see First Citizens executives tell analysts on the earnings call that it will be business as usual for the SVB segment.
“If they just say hold on, we’re going to put the brakes on … then I think it’s concerning,” he said. “Then you’re not taking advantage of the business that you bought.”
What First Citizens CEO Frank Holding says about SVB
First Citizens is typically an acquisition hungry bank, having completed several deals in recent years, including the buy of CIT Group, which gave it a real foothold in California. Analysts say another deal is unlikely in the short term as First Citizens works to digest SVB, which was based in Santa Clara, California.
But even apart from First Citizens, deals may dry up in 2023. Gailey predicts that, outside of distressed M&A, “I don’t see much M&A for the rest of the year.”
He said the announcement Thursday that TD Bank's (NYSE: TD) acquisition of First Horizon National (NYSE: FHN) isn't happening due to regulatory issues is “not a good read across bank M&A.”
“This merger termination kind of piles on to the bear thesis on the banks right now, and it’s not good,” Gailey said.
Add in the trio of recent bank failures, and Gailey expects regulators to be a lot more involved going forward.
“They’re going to scrutinize the banks a lot more in today’s environment,” he said.
However, distressed banks may be looking at options. PacWest (Nasdaq: PACW), which entered the Triangle with its purchase of Square One, has confirmed it's exploring options that could include a potential buyout after its stock took another dive last week.