HSBC acquires Silicon Valley Bank UK
Newsflash: HSBC UK Bank plc is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1, after a weekend of frantic negotiations by UK officials.
In a statment to the City, HSBC says the transaction “completes immediately”. The acquisition will be funded from existing resources.
The bank adds:
As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m. SVB UK’s tangible equity is expected to be around £1.4bn. Final calculation of the gain arising from the acquisition will be provided in due course.
Key events
HSBC’s acquisition of Silicon Valley Bank UK for £1 is a welcome development for SVB’s depositors and the wider banking system, says Victoria Scholar, head of investment at interactive investor.
It means that SVB UK will avoid insolvency proceedings and its customers will be able to access deposits and banking services as normal from today. European markets look set to open higher as a crisis in the banking sector is averted for now.
She says Wall Street is set to rally today after US authorities guaranteed all deposits after Silicon Valley Bank collapse yesterday, helping to ease fears of a banking crisis.
Meanwhile in the US, regulators have approved plans to create a backstop for SVB depositors and financial institutions, providing them with access to their funds from today. Plus the Federal Reserve has announced an emergency lending facility to support US banks and reduce wider contagion. This has helped to lift US futures after Wall Street closed sharply lower on Friday with the Nasdaq down over 1.75% and the Russell 2,000 down almost 3%.
Scholar also explains how the collapse was caused:
The collapse was triggered after SVB crystallised a $1.8 billion loss on its $21 billion bond portfolio, spooking investors and customers, and sparking a run on the bank.
The tech sector lender took a view on interest rates last year and miscalculated the expected level of rate hikes from the Fed, landing the lender with heavy losses.
On top of that, the rising cost of funding and volatile financial markets which caused a dearth in IPOs made life more difficult for many of SVB’s tech start-up customers, who began withdrawing deposits, putting pressure on SVB.”
Eileen Burbidge: it’s incredibly welcome news after a chaotic weekend
Eileen Burbidge, a partner at the tech venture capital firm Passion Capital, says the deal with HSBC is a ‘wonderful solution’.
Burbidge tells Radio 4’s Today programme:
It brings to the close a really chaotic weekend.
Burbidge says the collapse of Silicon Valley Bank was “extremely consequential for the tech sector”
The risk is thinking that the tech sector is its own isolated or niche ecosystem, when in fact now technology underpins all the UK economy and is involved in everything from transport to food supply, to healthcare…and everything we rely on for our daily lives.
The news that deposits are going to be guaranteed, and that banking services have been restored as of today, is obviously incredibly welcome.
Q: But what about the moral hazard question? Won’t the sector be encouraged to do risky things because they think they’ll always be bailed out?
Burbidge says not. She argues that neither SBV UK nor the UK tech sector were doing anything particularly risky before regulators took action last Friday.
SVB UK was held to the same standards as every other bank in the UK, she insists, and this morning’s sale to HSBC shows that the bank had a strong asset base.
What we had was a classic run on the bank, and actually the biggest run on a bank in history, depending on how you define it, based on how quickly funds were moved out of that bank between Thursday and Friday.
[Reminder, that bank run began when parent company SVB Financial Group announced it had made a $1.8bn loss on the sale of $21bn of securities from its portfolio, meaning it would sell $2.25bn of new shares to shore up its finances.]
Bank of England: all depositors’ money with SVBUK is safe
The sale to HSBC this morning has been taken to “stabilise SVBUK”, says the Bank of England.
The UK central bank says the deal will ensure the continuity of banking services, minimise disruption to the UK technology sector and support confidence in the financial system.
Importantly, the Bank of England and HM Treasury can confirm that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
That will be a massive relief for tech companies, who feared an ‘existential threat’ to their businesses if they had lost their funds at SVB UK.
The BoE add that the deal with HSBC means SVB UK will not now be put into insolvency. It says:
SVBUK’s business will continue to be operated normally by SVBUK. All services will continue to operate as normal and customers should not notice any changes.
Customers can continue to contact SVBUK through the usual channels and borrowers should make any loan repayments to SVBUK as normal. SVBUK staff remain employed by SVBUK, and SVBUK continues to be a PRA/FCA authorised bank.
Today’s announcement supersedes the Bank’s 10 March statement that, absent any meaningful further information, it intended to apply to the Court to place SVBUK into a Bank Insolvency Procedure. Given the emergence of a credible purchaser for SVBUK the Bank has determined that using its resolution powers for stabilising failing banks is appropriate.
No other UK banks are directly materially affected by these actions, or by the resolution of SVBUK’s US parent bank. The wider UK banking system remains safe, sound, and well capitalised.
Hunt: Deposits will be protected, with no taxpayer support
Chancellor Jeremy Hunt says customer deposits at Silicon Valley Bank UK will be “protected, with no taxpayer support” through the rescue deal with HSBC.
Hunt adds:
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
Deposits will be protected, with no taxpayer support
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise
— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
HSBC: SVB UK customers are backed by our ‘strength, safety and security’
Noel Quinn, HSBC Group CEO, is welcoming Silicon Valley Bank UK customers.
He says they can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.
Quinn explains:
“This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.
We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC. We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them.”
HSBC acquires Silicon Valley Bank UK
Newsflash: HSBC UK Bank plc is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1, after a weekend of frantic negotiations by UK officials.
In a statment to the City, HSBC says the transaction “completes immediately”. The acquisition will be funded from existing resources.
The bank adds:
As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m. SVB UK’s tangible equity is expected to be around £1.4bn. Final calculation of the gain arising from the acquisition will be provided in due course.
Here’s Sky’s Ed Conway:
NEW:
Silicon Valley Bank’s UK subsidiary has been sold to HSBC.
Depositors will be fully protected.
Will be announced by @bankofengland and @hmtreasury imminently.
Biggest firesale of a UK Bank since the financial crisis— Ed Conway (@EdConwaySky) March 13, 2023
Sly News: HSBC on brink of a deal to rescue Silicon Valley Bank UK
Important developments.
Sky News are reporting that HSBC Holdings is on brink of a deal to rescue Silicon Valley Bank UK, which would avert its insolvency.
Exclusive: HSBC Holdings is on the brink of a deal to rescue Silicon Valley Bank UK, averting the technology-focused lender’s insolvency. An announcement from the company and the Treasury is imminent. More soon.
— Mark Kleinman (@MarkKleinmanSky) March 13, 2023
The UK tech sector is hoping for a similar response to the package announced in the US last night, says Russ Shaw, founder of Tech London Advocates.
Shaw told BBC Radio:
What we’re hoping for is a similar approach by the UK government here, which is called the Financial Services Compensation Scheme.
[We are hoping] the FSCS will take a similar approach to the US, which is people get that short term protection and coverage.
The sentiment here is nobody wants a taxpayer bailout.
Sunak: working to “find the best solution” to SVB collapse.
Rishi Sunak sought to reassure British businesses over the collapse of Silicon Valley Bank on Sunday night, our political correspondent Aubrey Allegretti reports.
As he flew to the US for defence talks with President Joe Biden and Australian Prime Minister Anthony Albanese, the UK PM said “our overall financial system is sound and there’s nothing to worry about there”.
He hinted an announcement was imminent, saying “we will have something to say very shortly”.
Soon after landing in San Diego, the prime minister told broadcasters he had been monitoring the situation during the 15-hour flight, speaking to the chancellor and keeping in touch with regulators including the Bank of England.
Rishi Sunak says he’s been working through the 15-hour plane journey to San Diego, speaking with the chancellor and Bank of England to “find the best solution” to SVB collapse.
He says people should be reassured our financial system is sound and there’s nothing to worry about.
— Aubrey Allegretti (@breeallegretti) March 13, 2023
Sunak stressed he understood “the concern that people have got around what’s going on with SVB”.
He added he was focused on “finding the best solution” that would “continue to support our world-beating technology sector and all the high-skilled jobs that it supports”.
FT: UK races to finalise sale of Silicon Valley Bank unit before markets open
British ministers and the Bank of England are racing to conclude a private sale of Silicon Valley Bank’s UK arm before markets open his morning, after frantic all-night talks.
People briefed on the negotiations said the potential acquirer was holding conference calls with the BoE through the night, the Financial Times reports.
“The deal’s not done but we’re hoping for a market open announcement,” one person said.
A sale of the stricken bank is the preferred choice of Jeremy Hunt, UK chancellor, since it would hopefully avoid the government having to make a big intervention to protect depositors.
Full story: US guarantees all deposits after Silicon Valley Bank collapse
US financial regulators rolled out emergency measures Sunday night to stem potential contagion from the collapse of Silicon Valley Bank, my colleague Ed Helmore reports.
The measures include ensuring that depositors with the failed bank would have access to all their money on Monday morning.
Regulators announced the measure in a joint statement from the treasury secretary, Janet Yellen, the Federal Reserve chair, Jerome Powell, and the Federal Deposit Insurance Corporation (FDIC) chair, Martin Gruenberg.
They said in a statement:
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,”
The announcement came as Signature Bank was closed on Sunday by regulators. Depositors in Signature would also be made whole, the statement said.
Capital Economics analyst Paul Ashworth said:
“Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age.
But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”
More here:
The Tony Blair Institute warned last night that UK tech businesses needed assurances by this morning that their money is safe, following the Silicon Valley Bank collapse
TBI executive director for policy, Sam Sharps, said:
“This is a crucial moment for all of us who care about the UK tech sector. The problem didn’t start here but we need a British solution that protects the jobs of the future and our best chances for economic growth.
It’s clear that unless businesses have the assurance by morning that their money is safe, the consequences could be severe. This means we can’t afford to wait and see – this is an emergency and we can’t be satisfied with short term fixes.”
The future of SVB presents a profound risk for the UK tech sector.
Without a solution, jobs, investment and companies that will be important to the economic health of the UK could be decimated.
Short response from @jeegarkakkad and me. 1/
— Benedict Cooney (@benedictcooney) March 12, 2023
To protect depositors and ensure companies don’t pay the price, the best option will be an acquisition and recapitalisation, such as reports regarding Barclays. However, other options to ensure a guarantee cannot be off the table.
— Benedict Cooney (@benedictcooney) March 12, 2023
This is a moment of truth for government’s ambitions for science and tech and the speed and decisiveness with which this happens will be critical.
A short-term fix is necessary, but longer-term solutions to strengthen our ecosystem need to happen.https://t.co/I2eCkp59XJ
— Benedict Cooney (@benedictcooney) March 12, 2023
Introduction: UK tech firms await news after Silicon Valley Bank collapse
Good morning.
British tech firms with money in the UK arm of Silicon Valley Bank are anxiously waiting whether a rescue deal will be agreed today to protect them, after SVB collapsed late last week.
The Treasury and the Bank of England have been working through the weekend, amid warning that the UK’s technology sector could suffer significant damage unless a package was agreed fast.
Dozens of early-stage tech companies in the UK warned the government that the sector faced “an existential threat”, given so many start-ups banked with SVB UK.
Chancellor Jeremy Hunt has been focused on finding ways to keep cash flowing to tech groups. On Sunday morning, Hunt told Sky News that the collapse of SVB did not pose a systemic risk to the financial system.
But, he waned that fledgling businesses across the tech and life sciences sector were at “serious risk” if deposits were wiped out by the collapse of SVB UK, saying:
…there is a serious risk to our technology and life sciences sectors.
“It happens to look after the money of some of our most promising and exciting businesses.
Last night, one offer was announced for the UK branch of SVB. A consortium of investors led by The Bank of London, a UK clearing bank, has submitted a formal bid to the Treasury.
Anthony Watson, group chief executive and Founder of The Bank of London said:
“Silicon Valley Bank cannot be allowed to fail given the vital community it serves.
This is a unique opportunity to ensure the UK has a more diversified banking sector, whilst allowing continuity of service to SVB’s UK client base. It would be deeply disappointing for this moment to lead to further consolidation of power among big banks.”
US regulators took action last night to shore up confidence in America’s banking system, after the collapse of Silicon Valley Bank – which was shut down by US regulators on Friday in the largest failure of a US bank since 2008.
The Federal Reserve and the US Treasury announced that US Silicon Valley Bank depositors would get full access to their money today, effectively ripping up the limit on how much money was protected if a bank failed.
Policyakers also announced the closure of another US bank, New York-based Signature, and also unveiled new emergency funding measures to help banks meet their depositors’ needs.
The US move raises concerns over ‘moral hazard’. But billionaire hedge fund manager Bill Ackman welcomed the intervention, warning that without it “we would have had a 1930s bank run continuing first thing Monday”.
This was not a bailout. During the GFC, the gov’t injected taxpayer money in the form of preferred stock into banks. Bondholders were protected and shareholders were diluted to varying degrees. Taxpayer money was put at great risk. Many people who screwed up suffered minimal to… https://t.co/mjwcnVRV9X
— Bill Ackman (@BillAckman) March 13, 2023
