In a significant development within the banking sector, First Citizens, the new owner of Silicon Valley Bank's (SVB) US operations, is set to reduce its workforce by approximately 500 positions. The move comes following SVB's collapse and subsequent acquisition by First Citizens two months ago. This development had triggered concerns of a potential widespread banking crisis, prompting regulatory intervention. First Citizens' CEO, Frank Holding, addressed the challenges faced by SVB earlier this year in an email, clarifying that the job cuts would primarily affect select SVB corporate functions rather than client-facing roles. Notably, the team in India supporting SVB will remain unaffected by these changes. The reduction represents approximately 3% of First Citizens' total workforce.
First Citizens, based in Raleigh, North Carolina, and self-proclaimed as America's largest family-controlled bank, has emerged as a major player in the acquisition of distressed financial institutions in recent years. The purchase of SVB by First Citizens has resulted in all 17 former SVB branches now operating under the First Citizens brand.
Meanwhile, HSBC acquired SVB's UK business earlier in March, paying a nominal £1 ($1.25) for the deal. Notably, this transaction was facilitated by the UK government and the Bank of England. HSBC recently disclosed that the takeover had provided a $1.5 billion boost to its profits, underscoring the significance of the acquisition.
During a Congressional testimony, Greg Becker, the former SVB CEO, issued an apology, attributing the bank's collapse to rising interest rates and substantial customer withdrawals. Interest rates, which had been cut sharply in response to the 2008 global financial crisis and the COVID-19 pandemic, have begun to rise over the past year to combat surging inflation. These rate increases adversely impacted the value of investments held by most banks, thereby contributing to the failures experienced by several financial institutions in the United States.
However, regulators hold a different perspective, placing the blame on SVB's leadership for their failure to effectively manage interest rate risks and diversify the bank's operations. It is clear that differing narratives surround the reasons for SVB's demise, emphasizing the complexities underlying its collapse.
First Citizens' decision to cut 500 jobs following its acquisition of SVB's US operations marks a significant turning point in the banking landscape. While this move may spark concerns about the broader banking sector, it is important to note that the reductions will be limited to select SVB corporate functions and will not affect client-facing roles. The acquisition of SVB by First Citizens and the subsequent purchase of its UK operations by HSBC signal a restructuring within the industry as banks seek to navigate the challenges posed by rising interest rates and other market dynamics. As regulators continue to investigate the events surrounding SVB's collapse, the financial sector braces itself for potential future disruptions and strives to ensure the stability of banking systems worldwide.