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HSBC buys failed US bank SVB’s UK arm for £1

March 14, 2023

LONDON/WASHINGTON: The UK arm of failed US lender Silicon Valley Bank has been bought by HSBC for a nominal £1 ($1.2) in a rescue deal, the government and HSBC announced on Monday.

The sale, overseen by the Bank of England and the Treasury, comes after SVB collapsed on Friday sparking panic in Britain over its key customers in the technology and life science sectors.

“Silicon Valley Bank (UK) Ltd has been sold to HSBC,” the government said in a statement, after frantic talks reportedly led by Prime Minister Rishi Sunak. “This transaction has been facilitated by the Bank of England, in consultation with the Treasury.”

Finance Minister Jeremy Hunt added that no government cash was involved, while all customer deposits have been safeguarded. “This (deal) ensures customer deposits are protected and can bank as normal, with no taxpayer support,” added Hunt.

“I am pleased we have reached a resolution in such short order. ”Hunt had warned on Sunday that there was a “serious” risk to Britain’s tech and life sciences firms that banked with SVB.HSBC agreed to pay just £1 for the business, the bankgiant added in a separate statement on Monday.

The Asia-focused lender added that SVB UK had loans of about £5.5 billion and deposits of around £6.7 billion. “This acquisition makes excellent strategic sense for our business in the UK,” said HSBC chief executive Noel Quinn.

“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.”

The deal excluded assets and liabilities of SVB UK’s parent companies, while HSBC expects a gain to arise from the acquisition. SVB UK’s customers “can continue to bank as usual” and will be “safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC,” Quinn noted.

California-based SVB failed after its customers, mainly from the tech sector, made massive withdrawals, and after its latest attempt to raise new money proved unsuccessful. Its demise is not only the largest bank failure since Washington Mutual in 2008, but also the second-largest retail bank failure in the US.

Meanwhile, President Joe Biden sought to reassure Americans over the country’s banking system on Monday as more US banks came under stress and European stocks tumbled on contagion worries.

SVB -- a key lender to startups across the United States since the 1980s -- collapsed after a sudden run on deposits, prompting regulators to seize control on Friday. On Sunday night, US federal authorities stepped in to protect all depositors at SVB, and regulators took over a second troubled lender.

“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Biden said in brief televised remarks from the White House in which he insisted taxpayers would not be on the hook. But there were immediate signs of pressure at additional US lenders.

San Francisco-based First Republic Bank shares plunged around 75 percent, while Ohio-headquartered KeyCorp lost 28 percent and Zion Bancorporation lost 30 percent.

While major US indices veered in and out of positive territory, trading was uglier in Europe, with bourses in Paris, Frankfurt and Milan down around three percent or more.

“Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe,” City Index analyst Fiona Cincotta said. “Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links.”