Fannie Mae, Freddie Mac shares tumble after conservatorship comments
On Tuesday, Piper Sandler reaffirmed its Overweight rating and a $2,250.00 price target for First Citizens BancShares (NASDAQ:FCNCA), representing significant upside from the current trading price of $1,606.17. The firm's analysts highlighted the early termination of the Commercial Shared-Loss Agreement (CSLA) with the FDIC as a positive indicator of the bank's confidence in the credit quality of the loans acquired from Silicon Valley Bridge Bank (SVBB). According to InvestingPro data, analyst targets for FCNCA range from $2,000 to $2,750, reflecting strong institutional confidence in the bank's prospects.
First Citizens announced after the market closed on Monday that it had ended the CSLA with the FDIC, which was initially established during the March 2023 acquisition of SVBB. The agreement, which covered around $60 billion in loans, provided a 50% FDIC reimbursement for losses beyond $5 billion. The bank's management concluded that it was unlikely to reach the loss threshold, leading to the decision to terminate the agreement. With a market capitalization of $21.68 billion and a P/E ratio of 10.81, First Citizens maintains a "GOOD" overall financial health score according to InvestingPro analysis.
The termination of the CSLA effectively nullifies all rights and obligations associated with it, and no payments are due from either party. Piper Sandler views this move as an affirmation of the bank's belief in the strong credit performance of the legacy SVB loan portfolio. Additionally, it simplifies operational and disclosure requirements, although it does not impact current earnings or capital levels.
The termination also eliminates contingent accounting complexities, which Piper Sandler believes will improve the clarity of the bank's financial reporting. The analysts see this development as evidence of successful integration of SVBB and a clearer path for First Citizens' future capital strategy.
In other recent news, First Citizens BancShares has ended its loss-sharing agreement with the Federal Deposit Insurance Corporation (FDIC) concerning the acquisition of assets from Silicon Valley Bridge Bank. This decision was driven by the bank's assessment that the likelihood of incurring significant losses was minimal, thereby relieving the company of related reporting obligations. Additionally, First Citizens BancShares has issued $1.25 billion in new debt securities, consisting of senior and subordinated notes, to strengthen its capital structure. These notes were offered through Citigroup (NYSE:C) Global Markets Inc. and J.P. Morgan Securities LLC, and details were filed with the Securities and Exchange Commission.
Analyst activity has also been notable, with Keefe, Bruyette & Woods maintaining an Outperform rating and a price target of $2,500, while Piper Sandler upgraded the stock to Overweight with a target of $2,250. Piper Sandler's upgrade was influenced by the bank's share repurchase strategy, which could involve buying back up to $6 billion in shares by 2026. DA Davidson has maintained a Neutral rating with a price target of $2,400, acknowledging potential benefits from asset sensitivity and capital return while noting risks from increased operational expenses. These recent developments reflect First Citizens BancShares' strategic financial maneuvers and analyst perspectives on its future performance.
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