HSBC snaps up stricken Silicon Valley Bank’s UK arm for £1
HSBC has bought the UK arm of the failed Silicon Valley Bank (SVB) for just £1, ensuring the future of 3,000 UK businesses that bank with SVB.
Customers of SVB, which specialised in lending to start-up tech companies, will now be able to access their accounts, which were frozen when the bank collapsed on Friday 10 March. It was the largest failure of a US bank since 2008.
Chancellor Jeremy Hunt said that “the government and the Bank of England facilitated a private sale of SVB UK to HSBC Deposits…with no taxpayer support.
“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.”
SVB UK had loans of around £5.5bn and deposits of around £6.7bn (as at 10 March 2023). For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m.
Between 30 per cent and 40 per cent of UK start-ups, employing up to 50,000 people, could have been affected by the collapse.
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SVB specialised in lending to start-up firms, and the company served nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.
SVB came under pressure after the US Federal Reserve hiked interest rates, as it had invested heavily in government bonds.
These are typically safe investments in a low-interest-rate environment but the value of those investments fell because they paid lower interest rates than what a comparable bond would pay if issued today amid higher rates.
At the same time, SVB was experiencing falling deposit volumes, as its tech start-up customers were feeling the squeeze in a challenging macroeconomic environment with less venture capital funding.
SVB was forced to sell off assets – including its poor-performing bonds – to meet customer withdrawal requests.
The bank had to sell assets at a loss and this resulted in it becoming effectively insolvent. Attempts to raise additional capital from outside investors failed.
The Bank of England and the Treasury confirmed that all depositors’ money with SVB UK is safe and secure as a result of this transaction. SVB UK’s business will continue to be operated normally by SVB UK. All services will continue to operate as normal and customers should not notice any changes.
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“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,” said Noel Quinn, HSBC Group chief executive.
“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.”
HSBC will update shareholders on the acquisition at its first-quarter results announcement on 2 May 2023.
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