HSBC buys stricken Silicon Valley Bank UK for £1

silicon-valey-bank-uk

The UK Government has confirmed that stricken Silicon Valley Bank (UK) Ltd has been sold to HSBC for just £1.

Silicon Valley Bank in the US collapsed into administration on Friday after a run on the 40 year bank, which became the bank of choice for the banking services of technology firms, and adtech companies in particular, in recent years.

HSBC buys SVB

HSBC, the largest bank in Europe, is also one of the world’s largest banking and financial services institutions, serving 39 million customers globally.

Customers of SVB UK will be able to access their deposits and banking services as normal from today, the government wrote in a statement.

This transaction has been facilitated by the Bank of England, in consultation with the Treasury, using powers granted by the Banking Act 2009.

No taxpayer money is involved, and customer deposits have been protected.

Making use of post-crisis banking reforms, which introduced powers to safely manage the failure of banks, this sale has protected both the customers of SVB UK and taxpayers.

The UK has a world leading tech sector, with a dynamic start-up and scale-up ecosystem and the government is pleased that a private sector purchaser has been found.

Chancellor Jeremy Hunt said: “The UK’s tech sector is genuinely world-leading and of huge importance to the British economy, supporting hundreds of thousands of jobs.

“I said yesterday that we would look after our tech sector, and we have worked urgently to deliver on that promise and find a solution that will provide SVB UK’s customers with confidence.

“Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order.

“HSBC is Europe’s largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them.”

SVB collapse

The bank’s difficulties arose due to its heavy investment in US government bonds, which are usually seen as safe. But when a rapid rise in interest rates by the US federal Reserve kicked-in, those investments started to look risky. Bond prices generally fall when interest rates rise, which meant SVB’s portfolio of bonds was exposed to heavy losses.

When word got out that it was trying to urgently raise nearly $2bn to plug the losses investors took fright which started a deadly run on the bank.

In a statement to the London Stock exchange on Monday, HSBC wrote: “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. The assets and liabilities of the parent companies of SVB UK are excluded from the transaction.

“The transaction completes immediately. The acquisition will be funded from existing resources.”

Noel Quinn, HSBC Group CEO, said: “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.”