HSBC has recorded a $1.5 billion provisional profit on the rescue acquisition of Silicon Valley Bank, UK. The bank was purchased for £1 and there were “no nasty surprise” when it arrived.
The bank announced the gain when it reported that its pre-tax profit had more than tripled to $12.9 billion during the first quarter of the year. The bank also announced a 10 cents-per-share dividend for the first quarter of 2019 and a share-buyback plan up to $2 billion.
Noel Quinn said Silicon Valley Bank UK had a well-managed portfolio of loans. However, it wrote down the value by $232 millions of its assets, in part because of the reductions of value of the loan portfolio.
HSBC was the winner of the Silicon Valley Bank UK in a deal supervised by the British Government and Bank of England.
Quinn downplayed the impact of the ongoing problems at American regional bank and saving First Republic. He said: “We don’t believe that a global financial crisis is imminent.” “We don’t believe this is a systemic global issue.”
He said that the results were strong and showed the success of the three-year bank strategy. HSBC will face a vote by its shareholders this Friday regarding a resolution brought forward by rebel investors to spin off its Asian businesses.
HSBC has 39 million customers and $3 trillion in assets. It also employs 219,000 people. It was founded in Hong Kong in the year 1865. In 1992, when it acquired Midland Bank, its head office moved to London.
The net interest margin, which is closely monitored, increased by 0.5 percentage point to 1.69 percent. HSBC stated that, while margins are expected to remain positive, they expect more customers to move their money into higher-yielding accounts.
HSBC UK, like all mainstream banks in the UK, has been criticized for its slow transfer of base rate increases to savers.
The bank has set aside an additional $432 million for expected defaults by borrowers, down from the $639 million it had in the first quarter last year. The bank reduced its risk because it believes that adverse economic scenarios are less likely.
HSBC, like other banks, reported a net deposit withdrawal of $10 billion over the last quarter. Quinn, however, said that the outflow was “nothing substantial” when compared to its $1.6 trillion in deposits.
Quinn responded that it was the responsibility of each bank to determine prudent liquidity levels. He said that banks were prone to problems when they pursued profits “at the cost of balanced risk appetite”.
Quinn stated that HSBC would maintain Silicon Valley Bank UK, a separate business managed by HSBC with its own headquarters located in London. However, the name of this bank will be changed “shortly”. It has hired forty people in the United States. After the writedown, its net assets amounted to $1.51 billion.
Gary Greenwood, Shore Capital, said that profits were higher than expected in part due to accounting gains. HSBC reversed a charge for impairment on its French retail banking operation because of difficulties in its sale.
The 10 cent dividend “was also larger than expected”. Hong Kong retail investors have been pressing HSBC to increase payouts.