Monday’s rescue of Silicon Valley Bank’s UK branch by HSBC was a key step in avoiding a crisis within Britain’s tech sector. This came after all-night talks between Prime Minister Rishi Unak and the Bank of England.
Noel Quinn was chief executive at HSBC and stated that the acquisition made strategic sense. The deal will see HSBC pay a symbolic 1 to SVB UK. This avoids the UK government being forced to intervene to protect depositors.
SVB UK was swept up by the collapse of Silicon Valley Bank in California, which US regulators closed on Friday. SVB UK has approximately 3,300 clients in the UK. These include start-ups and venture-backed funds. This could lead to worries about Britain’s health and future of tech and life science industries.
Dom Hallas was the executive director of Coadec, which represents UK start-ups. He claimed that by orchestrating a sale, authorities had “saved many of the UK’s best innovative companies.”
Tech groups welcomed the rescue of SVB UK, but equity markets in general remained nervous on Monday. European stocks dropped and US futures slightly higher, as investors tried to gauge the impact of the California-based SVB collapse, which was the largest US bank failure since 2008.
“This morning, the Bank of England and the government facilitated a private sale of Silicon Valley Bank UK (HSBC) to HSBC. On Twitter, Jeremy Hunt, UK chancellor, wrote that deposits will be protected and no taxpayer support.
After warning that it would put SVB UK insolvency following the collapse of its parent company, the BoE stated that they had taken action to stabilize SVB UK and ensure continuity of banking services, minimize disruption to the UK’s technology sector, and support confidence in the financial market.
SVB UK had PS6.7bn in deposits on Friday when the BoE declared it at risk. According to one person familiar with the matter, depositors pulled billions of pounds from the bank as panic spread among UK technology executives. The bank had more than PS10bn worth of deposits on Thursday.
HSBC acquired a business despite SVB UK’s recent heavy outflows. SVB UK’s tangible equity has a value of around PS1.4bn. It includes a 1bn capital injection last summer from its parent company and the remainder from AT1 capital bonds and tier 2 capital bonds.
HSBC anticipates making a profit and considers the 3,300 customers a boost for its UK business.
An HSBC executive who was involved in discussions over the weekend said that they see it as value accretive. It’s a positive development for the commercial lending franchise. It’s a great opportunity.
The BoE stated that hours after US regulators shut down Signature Bank, a second American lender in the USA, “No other UK banks are directly affected by these actions or the resolution of SVB UK’s US parent bank.” The UK’s banking system is safe, sound and well-capitalised.
Sunak, Hunt, and Andrew Griffith were the leaders of the overnight rescue mission for SVB’s UK arm. Andrew Bailey, BoE governor and Sam Woods, Prudential Regulation Authority, were also involved. The sale was advised by Rothschilds.
According to one person who was briefed about the negotiations over the future SVB UK’s loans of PS5.5bn, it was a “fully competive” process that had multiple interested parties in taking over the bank.
Sunak, who is currently in California to attend a defense summit with leaders from Australia and the US, was reported to have been “very hands on” over the night.
Quinn, HSBC, stated that the deal “enhances our commercial banking franchise” and “enhances our ability to service innovative and fast-growing companies, including those in the technology, life-sciences, and international sectors.”
SVB UK will be part of HSBC, which has 14mn clients and 18,500 employees. Birmingham is the home of the business, which has its roots in Midlands Bank.
HSBC stated that a final calculation of the gains from the acquisition would be made in due course. It would also state that the acquisition would be funded using its existing resources.
Hunt stated that there was a “serious risk” for tech and life science companies using SVB’s UK branch. Senior founders warned of “carnage” if the bank fails to pay their wages and bills over the next week.
The government spent Saturday racing to sell SVB UK, and put together a backup plan to help companies with deposits in the lender. On Sunday evening, US regulators stated that SVB’s American depositors would be able to access all their money Monday.
People familiar with UK government attempts to sell the property said that a Middle Eastern buyer was among the top bidders. According to sources familiar with the matter, OakNorth and Bank of London, both British banks, also submitted bids. The Bank of London led a consortium which included private equity groups.
SVB UK has many clients who have deposits below the 85,000 threshold that is covered by the financial insurance program.