Prof G Markets: First Citizens Acquires SVB, Hindenburg Shorts Block, and Nike vs. Hermès

Acquisition Strategy

First Citizens Bank's acquisition of Silicon Valley Bank (SVB) marks a strategic move in the banking sector. Scott Galloway highlights that First Citizens, based in North Carolina, acquired SVB's $72 billion loan portfolio at a 20% discount and took over $56 billion in deposits, with a $35 billion line of credit from the FDIC to cover potential losses 1. This acquisition is part of First Citizens' history of capitalizing on distressed banks, having done so eleven times before 2.

First Citizens is an example of that. And that is this is a company that is basically built on the backs of failed banks.

--- Scott Galloway

The bank's shares surged over 50% following the acquisition, reflecting investor confidence in its strategy.

   

Investment Strategy

Investing in distressed banking assets can offer significant returns, as demonstrated by First Citizens' acquisition of SVB. Scott Galloway explains that while instincts may drive investors to flee the banking sector, this can lead to opportunities where undervalued assets are available 2. First Citizens' strategy of acquiring failed banks and negotiating favorable terms with the FDIC exemplifies this approach 1.

The learning here is that of all the asset classes, or all of the parts of the lifecycle, there's seed venture growth, public growth, mature value, and then distressed.

--- Scott Galloway

This approach has proven profitable, with First Citizens' shares rising significantly post-acquisition.

   

Sector Implications

The acquisition of SVB by First Citizens has broader implications for the banking sector. Scott Galloway notes that while the sector faces challenges, the FDIC's role in backstopping banks like First Citizens ensures stability 3. This acquisition, although costly for the FDIC, did not burden taxpayers, as the costs are covered by fees charged to banks 3.

The FDIC is a separate off balance sheet insurance entity that charges fees to banks to cover bank runs like this.

--- Scott Galloway

This situation underscores the importance of strategic investments in distressed assets and the resilience of the banking system.