HSBC on Monday averted a crisis in Britain’s tech sector by rescuing Silicon Valley Bank’s UK arm, a fire sale sealed after all-night talks led by Prime Minister Rishi Sunak and the Bank of England. Noel Quinn, chief executive of HSBC, said that the acquisition made “excellent strategic sense”.
The deal, which will see HSBC pay a symbolic £1 for SVB UK, avoids the UK government having to step in to protect depositors. SVB UK has been swept up in the implosion of California-based Silicon Valley Bank, which US regulators shut on Friday. The possible collapse of SVB UK, which has about 3,300 UK clients, including start-ups, venture-backed companies and funds, had raised fears for the health of Britain’s tech and life sciences industries.
Dom Hallas, executive director at Coadec, a lobby group representing UK start-ups and tech companies, claimed that in orchestrating a sale authorities had “saved hundreds of the UK’s most innovative companies”.
While SVB UK’s rescue was welcomed by tech groups, broader equity markets remained on edge on Monday. European stocks fell and US futures were slightly higher as investors sought to calibrate the fallout from the collapse of California-based SVB, the biggest US bank failure since 2008. “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,” Hunt wrote on Twitter.
The BoE, which had warned it planned to put SVB UK into insolvency after the collapse of its parent, said action was taken “to stabilise SVB UK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system”. SVB UK had £6.7bn of deposits when the BoE deemed it to be at risk of failure on Friday.
Depositors had pulled billions of pounds as panic spread among UK technology executives, with the bank having had more than £10bn in deposits on Thursday, according to a person familiar with the matter. Despite SVB UK’s heavy outflows last week, HSBC has acquired a business without solvency concerns. SVB UK’s tangible equity is valued at about £1.4bn, made up of a £1bn capital injection from its former parent company last summer and the rest from AT1 and tier 2 capital bonds.
HSBC expects to make a profit from the deal and regards the 3,300 customers a boost to its UK business, which it is trying to expand. “We see it as value accretive,” said an HSBC executive involved in the discussions over the weekend. “It’s a positive thing for the commercial lending franchise. It’s a brilliant opportunity.” Hours after US regulators closed a second American lender, Signature Bank, the BoE stressed: “No other UK banks are directly materially affected by these actions, or by the resolution of SVB UK’s US parent bank.
The wider UK banking system remains safe, sound, and well capitalised.” The overnight mission to rescue SVB’s UK arm was led by Sunak, Hunt and City minister Andrew Griffith, while Andrew Bailey, BoE governor, and Sam Woods of the Prudential Regulation Authority were also involved. Rothschilds advised on the sale. One person briefed on the haggling over the future of SVB UK, which has £5.5bn of loans, said it was a “fully competitive” process with multiple parties interested in taking over the stricken bank. Sunak, who is in California for a defence summit with leaders of the US and Australia, was said to have been “very hands-on” overnight. HSBC’s Quinn said the deal “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-sciences sectors, in the UK and internationally”. SVB UK will become part of HSBC’s ringfenced UK business, which has 14mn customers and 18,500 staff.
The business, which traces its roots back to the Midlands Bank, is based in Birmingham. HSBC said a final calculation of the gain from the acquisition would be provided in due course and that it would be funded from its existing resources. Recommended News in-depthSilicon Valley Bank Regulators face questions over missed warning signs at Silicon Valley Bank Hunt said on Sunday there was “a serious risk” to tech and life sciences companies that used SVB’s UK bank, with senior founders warning of “carnage” if they were unable to pay wages and bills in the coming week.
The government spent the weekend racing to try to sell SVB UK and put together a back-up plan to support companies that have deposits trapped in the lender. US regulators on Sunday evening said SVB’s American depositors would have access to all of their money on Monday. Several people familiar with the UK government’s attempts to broker a sale said a Middle Eastern buyer was one of the leading bidders. British banks OakNorth and the Bank of London also submitted bids, with the latter leading a consortium that includes private equity groups, according to people familiar with the matter. Many of SVB UK’s clients have deposits under the £85,000 threshold covered by the financial insurance scheme.