Sudden collapse: A view of SVB in Copenhagen. Governments in the United States and Britain are taking extraordinary steps to stop a potential banking crisis after the historic failure of the bank. — AP
LONDON: HSBC Holdings Plc is buying the UK arm of Silicon Valley Bank (SVB), the culmination of a frantic weekend where ministers and bankers explored various ways to avert the SVB unit’s collapse.
The London-listed lender’s “ring-fenced subsidiary, HSBC UK Bank Plc, is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1 (US$0.82 or RM5.47),” HSBC said in a statement.
The deal completes immediately and will be funded from existing resources.
Chief executive officer Noel Quinn said in a statement the acquisition makes “strategic sense” and would boost its exposure to the technology and life-science sectors.
The Bank of England (BoE) said in a statement that “all depositors’ money with SVB UK is safe and secure as a result of this transaction”.
The central bank said all SVB services “will continue to operate as normal and customers should not notice any changes,” and “no other UK banks are directly materially affected by these actions”.
SVB UK staff remain employed and the lender continues to be authorised by UK regulators, the BoE added.
“This represents a good solution for all,” Shore Capital analyst Gary Greenwood said in a note, adding the impact on HSBC’s forecasts is likely to be immaterial.
HSBC’s shares were down 3.2% in London, in line with other lenders as investors mulled whether SVB’s mismatch in duration for its assets and liabilities has wider ramifications.
The sudden collapse of SVB’s US parent company last week is causing ripples through the banking and tech sectors.
The sharp rise in global interest rates has caught some of the world’s largest banks off guard.
Standard Chartered Plc said at its full-year results last month that it recorded a US$571mil (RM2.6bil) loss booked in its “central and other items” that the bank blamed on losses from its interest rate hedges in its treasury department.
Meanwhile, HSBC reported about US$5bil (RM22.4bil) of “adverse movements” in its holdings of financial instruments used to hedge its exposure to interest rate moves.
SVB’s UK unit had loans of around £5.5bil (US$6.7bil or RM30bil)) and deposits of around £6.7bil (RM36.6bil) as of March 10, according to the HSBC statement.
In 2022, SVB UK recorded a profit before tax of £88mil (RM481mil) and its tangible equity is expected to be around £1.4bil (RM7.7bil).
That’s essentially a rounding error for HSBC, which had US$493bil (RM2.7 trillion) in UK customer accounts at the end of 2022, according to its annual report.
A final calculation of the gain arising from the acquisition will be provided in due course, HSBC said. The assets and liabilities of the parent companies of SVB UK are excluded from the transaction.
The acquisition comes as HSBC prunes some of its global footprint. It sold its Canadian arm in November and disposed of its French and US retail operations in 2021.
Quinn said at the time of the Canada sale that that the money raised from the transaction would provide it with financial muscle to “invest in growing our core businesses,” in addition to potentially funding dividends and buybacks.
Ministers and officials had spent the weekend drawing up plans to safeguard the UK’s technology and life sciences industries, following warnings that they would be crippled without intervention.
Though small compared to the UK’s largest banks, SVB has an outsized role in the world of startups, describing itself as “the go-to banking partner for founders, entrepreneurs and investors.”
A host of lenders were mooted as possible buyers. Chancellor of the Exchequer Jeremy Hunt said SVB’s depositors will be protected with no taxpayer support.
“We could have seen some of our most important companies, our most strategic companies wiped out, and that would’ve been very dangerous,” Hunt said.
“The BoE is very clear the UK banking system is extremely secure. It’s well capitalised. And I think we demonstrated that resilience by what was happening over the weekend and the fact that we were able to come up with a solution so quickly.”
Bloomberg Intelligence said HSBC’s acquisition of SVB’s UK arm – comprising £6.7bil (RM36.6bil) in deposits, £1.4bil (RM7.7bil) of tangible equity – is supported by its capital and liquidity (with a sub-60% loan-to-deposit ratio) and confirms the lender’s commitment to keeping a global presence and the importance of the UK (20% of revenue and deposits).
The deal, under BoE supervision, will be critical to minimising disruption to the UK’s tech sector valued at £1 trillion (RM5.5 trillion).
Nascent clearing bank Bank of London Group Ltd said in a statement on Sunday that it submitted a formal proposal to take over SVB UK to the Treasury, Bank of England and the firm’s board. Royal Group, an investment firm controlled by a top Abu Dhabi royal, and SoftBank Group Corp-backed lender OakNorth were also among those considering a takeover, Bloomberg reported earlier Sunday.
Another option was for lenders to take on depositors from SVB’s British arm.
Under the plan, several big banks would have taken on SVB’s depositors, offering them access to money until their funds are released from the lender.
The leaders of roughly 180 tech companies had said in an open letter to Hunt seen by Bloomberg that the loss of deposits at SVB would have the potential to cripple the sector and set the ecosystem back 20 years.
Michael Moore, head of the British Private Equity and Venture Capital Association, said on Bloomberg Television that his group did a survey of 1,000 portfolio companies and one-third banked with SVB. Of those, 40% are facing immediate difficulties, such as not making payroll, he said before the sale announcement.
The agreement for the UK unit comes after US financial regulators moved on Sunday to assure all depositors their money is safe following the collapse of SVB and set up a new lending programme offered by the Federal Reserve with funds from the Treasury Department. — Bloomberg
