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HSBC acquires Silicon Valley Bank UK

HSBC has stepped in to acquire the UK arm of Silicon Valley Bank.

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HSBC acquires Silicon Valley Bank UK

Editorial

This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.

The failure of SVB UK over the weekend followed repeated assurances that it would not follow its parent company into insolvency as it was a standalone entity with a separate balance sheet.

Its subsequent collapse spread a fresh wave of panic about the implications for technology companies reliant on it for funding and the wider banking system in general.

HSBC is buying the beleagured bank for a symbolic token of just £1 and is reportedly set to inject $2.1 billion to keep the business operational.

As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m. SVB UK’s tangible equity is expected to be around £1.4bn.

Noel Quinn, HSBC Group CEO, says: “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."

HSBC already has leading tech VCs on its side. In a joint statement issued before its buy-out, a coalition of leading UK venture capital firms stated: "In the event that SVB-UK were to be purchased and apporpriately capitalised, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them."

UK clearer The Bank of London, which put its own bid on the table for SVB, is less enamoured of the deal. CEO Anthony Watson, says: “For many, this will be seen as a missed opportunity to support competition and innovation. It cannot be right that once again the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant, privileged position."

Whatever the merits of the deal, the acqusition will come as a relief to the UK Government, which was looking at the alarming prospect of a wide-spread tech bail-out programme.

Susannah Streeter, head of money and markets, Hargreaves Lansdown, comments: "This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis."

US regulators have also taken concerted action to limit the risk of contagion from the collapse of SVB after Signature Bank - a lender to the likes of Paxos and Coinbase - was shut down by regulators over a liquidity crunch.

Under the rescue programme, deposits at SVB and Signature will be guaranteed by the Federal Deposit Insurance Corporation, but crucially generous loan facilities will be provided to other institutions.

Nigel Green, CEO of deVere Group, says regulators had no choice but to act in order to break the doom-loop hitting the wider banking sector, but warns there could be more bumps along the way.

“The situation is moving quickly and despite the action taken by authorities, it isn’t over yet," he says. “Amongst other issues, there remain fears about contagion and there are real concerns that startups may be unable to pay their bills and salaries in coming days, venture investors may now find it hard to raise funds, and an already-pummelled sector could face a long rout.”

Tiffani Monetez, principal banking analyst at Insider Intelligence concurs: “Many tech startups are out of runway. SVB’s collapse will make additional funding even scarcer: VCs will become hyper-aware of startups’ cash burn, and banks will raise lending costs. Without cash infusion through loan or investment, we expect more failures and acquisitions of startups that are already on life support.”

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Comments: (1)

A Finextra member 

Wondering how many startups will have had a wake up call moment about the implications of the FSC deposit guarantee limits and will now be looking to spread their business banking arrangements from a fintech/neobank, and into a big, dull, safe, too big to fail, old school bank.

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