HSBC Holdings is buying the UK arm of Silicon Valley Bank (SVB) in a culmination of a frantic weekend when ministers and bankers explored various ways to avert the SVB unit’s collapse.

In a statement on Monday (Mar 13), the London-listed lender said that its ring-fenced subsidiary, HSBC UK Bank, was acquiring SVB UK for £1 (S$1.63). The deal will be completed immediately and will be funded from existing resources.

HSBC chief executive officer Noel Quinn said that the acquisition made “strategic sense”, and would boost the group’s exposure to the technology and life-science sectors.

The Bank of England (BOE) said in a separate statement on Monday that all depositors’ money with SVB UK was “safe and secure as a result of this transaction”. The central bank also said that all SVB services would “continue to operate as normal and customers should not notice any changes”. It added that no other UK banks were “directly materially affected by these actions”.

The BOE said that all SVB UK staff remained employed, and the lender continued to be authorised by UK regulators.

Gary Greenwood, analyst at Shore Capital, said: “This represents a good solution for all”. He added that the impact on HSBC’s forecasts was likely to be immaterial. 

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Shares drop

HSBC’s shares were down 3.2 per cent as of 9.23 am in London. This was in line with other lenders, as investors mulled over whether SVB’s mismatch in duration for its assets and liabilities would have wider ramifications.

The sudden collapse of SVB’s US 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 US$571 million loss booked in its “central and other items”. The bank blamed this on losses from interest-rate hedges in its treasury department.

Meanwhile, HSBC reported US$5 billion of “adverse movements” in its holdings of financial instruments used to hedge its exposure to interest-rate moves.

HSBC said that SVB UK had loans of around £5.5 billion and deposits of around £6.7 billion as at Mar 10. In 2022, the unit recorded a profit before tax of £88 million and its tangible equity was expected to be around £1.4 billion.

That is essentially a rounding error for HSBC, which had $493 billion in UK customer accounts at the end of 2022, said its annual report.

HSBC said a final calculation of the gain arising from the acquisition would be provided in due course. The assets and liabilities of the parent companies of SVB UK were 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 US retail operations in 2021. Quinn said at the time of the Canada sale that the money raised from the transaction would provide it with financial muscle to “invest in growing (its) core businesses”, in addition to potentially funding dividends and buybacks.

The acquisition also follows moves by US financial regulators on Sunday, to assure all depositors their money was safe following SVB’s collapse. They also set up a new lending programme offered by the Federal Reserve with funds from the Treasury Department.

Ministers and officials spent the weekend drawing up plans to safeguard the UK’s technology and life sciences industries, following warnings that they would be crippled without intervention. Though small compared to the UK’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”.

Several lenders were mooted as possible buyers. Chancellor of the Exchequer Jeremy Hunt said that SVB’s depositors would be protected with no taxpayer support.

“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 BOE is very clear the UK banking system is extremely secure. It’s well capitalised. 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.”

Bloomberg Intelligence financial analysts Jonathan Tyce and Tomasz Noetzel said: “HSBC’s acquisition of SVB UK – comprising £6.7 billion in deposits, £1.4 billion of tangible equity – is supported by its capital and liquidity (with a sub-60 per cent loan-to-deposit ratio), and confirms the lender’s commitment to keeping a global presence and the importance of the UK (20 per cent of revenue and deposits).”

They added that the deal, “under the BOE’s supervision, will be critical to minimising disruption to the UK’s tech sector valued at £1 trillion”.

Nascent clearing bank Bank of London Group said on Sunday that it had submitted a formal proposal to take over SVB UK to the Treasury, the BOE, and the firm’s board. Earlier in the day, Bloomberg reported that Royal Group, an investment firm controlled by a top Abu Dhabi royal, and SoftBank Group-backed lender OakNorth were also among those considering a takeover.

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 were released from the lender. 

The leaders of roughly 180 tech companies said in an open letter to Hunt that a loss of deposits at SVB had the potential to cripple the sector and set the ecosystem back by 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. One-third banked with SVB. Before the sale announcement, he said that of those companies, 40 per cent faced immediate difficulties, such as not making payroll. BLOOMBERG