British banking giant HSBC has inked a deal to buy up Silicon Valley Bank’s (SVB) British subsidiary for just a pound, it announced on Monday.
HSBC bought the UK wing of the company in a deal supported by the UK government and Bank of England.
The news comes after the US-based parent bank collapsed on Saturday, the second collapse after Silvergate Bank the week before.
Noel Quinn, Chief Executive, HSBC Group, said in a statement,
“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”
He added that British SVB customers could “continue to bank as usual” as HSBC would back their deposit. Downing Street added that it would protect customer deposits “with no taxpayer support.”
HSBC’s UK branch is expected to finance the SVB UK acquisition with immediate effect, excluding assets and liabilities of SVB’s parent company activities.
The news comes after British authorities scrambled to contain the aftermath of the worst banking collapse since Lehman Brothers in 2008.
UK Efforts to Tackle Crisis
At the time, Bank of London Co-Founder and Chief Executive, Anthony Watson, cautioned that SVB could not “be allowed to fail given the vital community it serves.”
“This is a unique opportunity to ensure the UK has a more diversified banking sector, whilst allowing continuity of service to SVB’s UK client base,” he added.
A statement from @thebankoflondon regarding @SVB_UK (Silicon Valley Bank UK Limited) pic.twitter.com/OHXx7kmpRY
— The Bank of London (@thebankoflondon) March 12, 2023
The Bank of London acts as a clearing back and worked with the Bank of England and UK Treasury to negotiate the terms of SVB’s acquisition on Sunday.
UK Chancellor Jeremy Hunt said at the time of the collapse at the weekend that the Bank of England had confirmed SVB’s “limited presence” in Britain’s economy.
He continued that the company did not “perform functions critical to the financial system.”
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
Deposits will be protected, with no taxpayer support
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise
— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
Jeremy Hunt added: “The UK has a world leading tech sector, with a dynamic start-up and scale-up ecosystem. The government recognises that, given the importance of Silicon Valley Bank to its customers, its failure could have a significant impact on the liquidity of the tech ecosystem.”
The UK Government treated the issue as a “high priority” and would work “at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK,” Hunt concluded.
Significance of SVB Collapse
Demond Cureton, Senior Journalist, XR Today, analysing the ongoing crisis at Silicon Valley Bank.
SVB UK’s parent company support cash management, financing, and foreign exchange services for tech startups and firms seeking venture capital and global wealth management solutions.
It supports verticals such as chipmaking, climate technologies, applied robotics, aerospace, consumer electronics, and Web3 and cryptocurrency technologies.
Over the years, SVB has remained friendly to the Web3 and cryptocurrency communities and its lending practices were not affected by ongoing crypto crises over the last year.
However, lending practices faced setbacks after clients could no longer access money from the bank, leading to knock-on effects for companies paying their employees, the Financial Times reported.
Rising interest rates triggered a lack of liquid capital, leading to weekend bank runs on SVB. US Federal Reserve Chair Jerome Powell’s rise of interest rates of up to 5.75 percent triggered SVB-held government securities.
Shortly after, SVB collapsed on Saturday, triggering the second US-based banking crisis in less than a week’s time.
US Treasury Secretary Janet Yellen said in her statement that the US Government would provide no financial assistance to SVB, leading to major concerns over the US banking industry’s health.
Furthermore, stablecoins such as Circle’s USD Coin (USDC) de-pegged from the US dollar at the weekend, triggering an outcry from holders of the cryptocurrency.
Many believe the de-pegging had eroded faith in stablecoin technologies amid shocks to Circle’s $3.3 billion in asset holdings at SVB.
The Federal Deposit Insurance Company (FDIC) can secure deposits up to just $250,000 USD.
US President Joe Biden Statements
US President Joe Biden also vowed to crack down on banks with fresh regulations while declaring the US banking system “safe.”
He said in a statement as quoted by Reuters: “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.”
Biden also noted the Government would fire all SVB banking managers and that investors would lose funds as a result of the crisis.
Speaking further on new regulations across the banking industry, he vowed to ask Congress and financial regulators to “strengthen the rules for banks to make it less likely this kind of bank failure will happen again, and to protect American jobs as a small business.”
