HSBC Holdings Plc has announced its acquisition of Silicon Valley Bank UK Limited, the UK arm of its US parent company, in an effort to prevent its collapse. The deal, valued at £1, has been completed immediately and will be funded from HSBC’s existing resources.
HSBC’s “ring-fenced” subsidiary”, HSBC UK Bank Plc, will acquire SVB UK according to a statement by the London-listed lister. CEO Noel Quinn has stated that the acquisition makes “strategic sense” and would enhance HSBC’s exposure to the technology and life- science sectors.
The Bank of England has issued a statement assuring that “all depositors’ money with SVB UK is safe and secure as a result of this transaction.” The central bank has also confirmed that all SVB services will continue to operate normally, and customers should not experience any changes. Furthermore, no other UK banks will be materially affected by this action. SVB UK staff will remain employed, and the lender will continue to be authorized by UK regulators.
Drop in Shares
Shares in HSBC have dropped by 3.2% as of 9:23 am in London, following concerns about the wider ramifications of SVB’s mismatch in duration for its assets and liabilities. The sudden collapse of SVB’s US parent company last week has sent ripples through the banking and tech sectors.
The global rise in interest rates has caught several of the world’s largest banks off guard with Standard Chartered Plc recording a $571 million loss in its interest rate hedges in its treasury department. Meanwhile, HSBC has reported about $5 billion of “adverse movements” in its holdings of financial instruments used to hedge its exposure to interest rate moves.
Financials of SVB
SVB UK had loans of approximately £5.5 billion and deposits of around £6.7 billion as of March 10, according to HSBC’s statement. In 2022, SVB UK records show a profit before tax of £88 million, and its tangible equity is predicted to be around £1.4 billion. For HSBC, it is basically a rounding error, as it had $493 billion in UK customer accounts at the end of 2022, as seen in its annual report.
The assets and liabilities of the parent company of SVB UK remain excluded from the transaction, and a final calculation of the gain from the acquisition will be provided in due course, according to HSBC.
The acquisition comes right as HSBC looks to cut back on its global footprint, having sold its Canadian arm in November and disposed of its French and US retail operations in 2021. Quinn had stated that the money raised from the sale of these operations would provide the bank with the financial strength to “invest in growing our core businesses”, in addition to potentially funding dividends as well as buybacks.
Following warnings that they would be crippled without intervention; the ministers and officials spent the weekend drawing up plans to safeguard the UK’s technology and life science industries. Although SVB is small in comparison to the UK’s largest banks, it plays a mammoth role in the startup world, describing itself as “the go-to banking partner for founders, entrepreneurs, and investors.”
While a bunch of lenders were suggested as potential buys, HSBC’s acquisition was seen as a “good solution” according to Shore Capital analyst Gary Greenwood. Furthermore, Chancellor of the Exchequer Jeremy Hunt has confirmed that SVB’s depositors will be protected with no taxpayer support. He went on to praise the Bank of England by pointing out the fact that coming up with a solution so quickly demonstrates that they are resilient, and the UK banking system is extremely secure.
An open letter to Hunt by approximately 180 tech companies, said that the loss of deposits at SVB would have the potential to cripple the sector and set the ecosystem back by 20 years.
While the sale of SVB’s UK unit is expected to provide a good solution for all the parties involved, the wider financial turmoil caused by the collapse of SVB continues to reverberate in the banking and tech sector. Financial regulators have moved to reassure depositors, and a new lending program offered by the Federal Reserve, funded by the Treasury Department, has been set up to provide further support.