First Citizens extends gain after rally, as D.A. Davidson stays neutral

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Enthusiasm around the formation of a much larger First Citizens Bancshares extended to a second day Tuesday despite a cautious tone from analysts on its acquisition of the former Silicon Valley Bank.

First Citizens Bancshares Inc.’s
stock ended the session with a gain of about 2%, a day after it rallied nearly 54%.

Also read: First Citizens’ stock notches largest one-day rally ever on deal for Silicon Valley Bridge Bank

D.A. Davidson on Tuesday hiked its price target by $200, to $1,025 a share, for the Raleigh, N.C.-based company and reiterated its neutral rating on the bank’s plan to buy the bulk of the former Silicon Valley Bank business in a deal brokered by the Federal Deposit Insurance Corp.

D.A. Davidson analyst Kevin P. Fitzsimmons said the stock’s record runup on Monday along with “looming environmental headwinds” are prompting him to maintain a neutral rating on First Citizens Bancshares.

While his total book value per share projection for First Citizens Bancshares increases to $1,015.50 from $571.89, Fitzsimmons said the figure contains “a fair amount of uncertainty in underlying purchase accounting assumptions.”

S&P reiterated its negative outlook as well as its BBB rating on First Citizens Bancshares and its BBB+ rating on its primary banking unit, First-Citizens Bank & Trust Co.

“This opportunistic acquisition improves the company’s geographic and loan
diversification and could potentially materially add to its earnings,” said S&P analyst E. Robert Hansen. “However, First Citizens faces the challenge of at least maintaining and rehabilitating the franchise value of the failed Silicon Valley Bank.”

Thomas Smale, the CEO of mergers-and-acquisitions adviser FE International, said First Citizens will gain more of a national presence with the deal, but it will face competition now from larger players.

“Given the concentration of tech on the West Coast, the acquisition of SVB will give Citizens a bigger footprint which will be beneficial in the long run to maintain and win similar clients to SVB’s in the future,” Smale said in an email to MarketWatch. “This is arguably easier than growing organically, and longer term will help them compete with the larger banks which were originally rumored to be interested in an acquisition, such as JPMorgan.”

Eric Schiffer, the chair of the Patriarch Organization, a private-equity firm, said the transaction by First Citizens won’t clear up jitters around a drop in balance-sheet values and uninsured deposits in the banking system.

“There are many more questions that are keeping investors up at night,” Schiffer said, adding: “Until the Fed is willing to guarantee every deposit irrespective of the amount, there’s these questions about balance-sheet risk, and many banks are vulnerable. You have assets that have shrunk in value and commercial real estate value is down and cash flow is down and loans need to be refinanced soon.”

Also read: First Citizens grows bigger with Silicon Valley Bank deal, but not big enough to move to next regulatory level

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