HSBC Holdings is buying the U.K. arm of Silicon Valley Bank, 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," HSBC said in a statement Monday. 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 said in a statement Monday 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 authorized by U.K. 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.
Shares Drop
HSBC's shares were down 3.2% as of 9:23 a.m. 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 U.S. 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 said at its full-year results last month that it recorded a $571 million 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 $5 billion of "adverse movements" in its holdings of financial instruments used to hedge its exposure to interest rate moves.
SVB Financials
SVB's U.K. unit had loans of around £5.5 billion ($6.7 billion) and deposits of around £6.7 billion as of March 10, according to the HSBC statement. In 2022, SVB UK recorded a profit before tax of £88 million and its tangible equity is expected to be around £1.4 billion.
That's essentially a rounding error for HSBC, which had $493 billion in U.K. 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 U.S. 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 U.K.'s technology and life sciences industries, following warnings that they would be crippled without intervention. Though small compared to the U.K.'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.
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
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
"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 Bank of England is very clear the U.K. banking system is extremely secure. It's well capitalized. 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."
HSBC's acquisition of SVB's U.K. arm — comprising £6.7 billion in deposits, £1.4 billion 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 U.K. (20% of revenue and deposits). The deal, under Bank of England supervision, will be critical to minimizing disruption to the U.K.'s tech sector valued at £1 trillion.
Nascent clearing bank Bank of London Group 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-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 U.K. unit comes after U.S. financial regulators moved on Sunday to assure all depositors their money is safe following the collapse of SVB and set up a new lending program offered by the Federal Reserve with funds from the Treasury Department.
—With assistance from Alex Wickham, Reed Landberg and Marion Dakers.
