In breaking news, HSBC has reached an agreement to acquire Silicon Valley Bank’s U.K. subsidiary, following lengthy negotiations. The HSBC SVB deal will see its U.K. ring-fenced subsidiary, HSBC UK Bank, purchase SVB U.K. for a nominal sum of £1 ($1.21).
It’s important to note that the deal only includes the assets and liabilities of SVB U.K.’s subsidiary and not its parent company. This acquisition marks a significant move for HSBC in the tech startup lending market, and it will be interesting to see how it positions itself following this deal.
The acquisition “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 U.K. and internationally,” said HSBC Group CEO Noel Quinn.
“SVB U.K. customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.”
According to the latest available data, SVB U.K. had loans amounting to approximately £5.5 billion and deposits of roughly £6.7 billion as of last Friday. Additionally, the bank recorded a pre-tax profit of £88 million in 2022, which HSBC highlighted in its announcement on Monday. Although HSBC expects SVB U.K.’s tangible equity to be roughly £1.4 billion, it has indicated that the exact gain arising from the acquisition will be disclosed at a later stage.
The sale of SVB U.K. was facilitated by the Bank of England, in consultation with the U.K. Treasury, with the primary aim of safeguarding the deposits of SVB U.K. clients. The Treasury has made a statement confirming that depositors will be fully protected.
The British Finance Minister, Jeremy Hunt, has emphasized the significance of the HSBC SVB deal in protecting the deposits of customers and enabling them to bank as usual, without any support from taxpayers. He has praised the U.K.’s tech industry as being truly world-class and instrumental in supporting hundreds of thousands of jobs, and highlighted the importance of the deal in promoting continued growth in this sector.
HSBC SVB deal brings stability to troubled lender
This acquisition is a significant step forward for HSBC in expanding its presence in the tech startup lending market, and it will be interesting to see how it leverages this acquisition to enhance its offerings to customers.
Prior to the HSBC SVB deal, British Finance Minister, Jeremy Hunt, had expressed concerns about the potential damage that could arise from the U.K. branch of SVB, and had indicated that the U.K. administration and the Bank of England were working to minimize these risks. On Sunday, U.S. regulators approved plans to safeguard depositors and financial institutions associated with the U.S. parent company, SVB.
The U.S. Treasury Department has designated both SVB and New York-based Signature Bank as systemic risks due to concerns about contagion, which has enabled it to develop plans to unwind both institutions in a way that protects depositors. These steps are part of a coordinated effort by regulators in both the U.K. and the U.S. to safeguard the financial stability of the institutions and minimize any potential damage to the broader financial system.
Toby Mather, CEO and co-founder of the children’s education platform Lingumi, has been a long-time customer of SVB, depositing a significant proportion of the company’s cash with the now-troubled lender for the past seven years. However, following the announcement of the HSBC SVB deal, Mather expressed a sense of relief for British startups.
In an interview with CNBC on Monday, Mather stated that the acquisition had caused a “big sigh of relief” among the startup community, as it had provided much-needed stability and reassurance. This sentiment is likely to be shared by many other startups that rely on SVB for their banking needs.
“I think I speak on behalf of UK startups when we say this is a huge relief and we can look our teams in the eye at 9 o’clock in our all-hands calls, which were going to be pretty nerve-racking this morning and say, not only will we be able to make the next payroll, but we can continue business as usual, continue innovating, doing our research and development and building the future of U.K. technology growth,” Mather told CNBC.
“HSBC is a great outcome … for the bank to go to a really large household name that has hundreds of years of history, I think is one of the best outcomes we could have had to feel like we can now stay with the new SVB, which has been such an important partner to the startup ecosystem, here and in the U.S. for decades now, so we feel confident,” he added.
Following the Friday failure of its U.S. parent company, several potential buyers had submitted proposals to acquire SVB U.K., as many British tech and life sciences startups faced an uncertain future. In addition to HSBC, a consortium of private equity firms led by the Bank of London had also submitted a formal proposal to the U.K. Treasury and the Prudential Regulation Authority at the Bank of England.
Commenting on the situation, Bank of London CEO Anthony Watson emphasized the importance of SVB to the community it serves, stating that it “cannot be allowed to fail.” The widespread interest in acquiring SVB U.K. highlights the critical role that the lender plays in supporting the growth of the British tech and life sciences sectors, and the potential impact that its failure could have had on these industries.
“This is a unique opportunity to ensure the U.K. has a more diversified banking sector, whilst allowing continuity of service to SVB’s U.K. client base. It would be deeply disappointing for this moment to lead to further consolidation of power among big banks.”
The Bank of England confirmed that no other U.K. banks are “directly materially affected by these actions, or by the resolution of SVBUK’s U.S. parent bank,” adding that the wider British banking system remains “safe, sound and well capitalised.”
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