© Reuters.
Monday saw a continued rise in the stock value of Raleigh, N.C.-based lender First Citizens BancShares, which surged over 50% following its acquisition of Silicon Valley Bank (SVB). This trend is unusual as typically, the acquiring company’s stock price tends to drop post-acquisition.
Market sentiment towards First Citizens remains positive six months after the acquisition. Recently, J.P. Morgan analysts initiated an Overweight rating on the lender’s stock, with a target price of $1,850, indicating a potential gain of 34% from its recent trading levels.
The market’s confidence in First Citizens is largely due to its successful history of bank acquisitions. Since 1990, the company has acquired nearly 50 banks, almost half of which were bought from the Federal Deposit Insurance Corp (FDIC). This long-standing track record demonstrates First Citizens’ expertise in integrating troubled operations into its own business.
Further bolstering market confidence is the belief that First Citizens strategically acquired only the functional parts of SVB. Despite SVB’s misstep of investing a surge of deposits in long-dated securities that lost value when the Federal Reserve started increasing interest rates, SVB’s underlying business was viewed as among the most valuable in the U.S.
Following the acquisition, SVB now constitutes 44% of First Citizens’ loans and 29% of its deposits. This deal positions First Citizens as a key player in the startup and venture capital community, a role previously held by SVB.
Market analysts anticipate a recovery in venture capital investing from its current downturn. With its strong presence in the startup ecosystem, First Citizens stands to benefit significantly.
Projections for 2024 and 2025 suggest that First Citizens will significantly outperform other banks covered by J.P. Morgan. The lender’s revenue growth is expected to reach 7.3% and 5.3% in 2024 and 2025 respectively, well above the forecasted growth of 0.4% and 3.8% for other banks in the same period. Similarly, earnings at First Citizens are projected to grow by 1.2% in 2024 and 9% in 2025, surpassing the peer averages of 0.9% and 6.3%.
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