HSBC rescues British arm of stricken Silicon Valley Bank

HSBC bought the UK arm of Silicon Valley Bank (SVB) for a symbolic one pound on Monday, rescuing a key lender for technology start-ups in Britain, as the biggest bank collapse since the financial crash continued to roil markets.

The deal, which sees one of the world’s biggest banks, with $2.9 trillion of assets, take the doomed British arm of the tech lender under its wing, brought to an end frantic weekend talks between the government, regulators, and prospective buyers.

It came after US authorities moved on Sunday to shore up deposits and try to stem any wider contagion from the sudden collapse of its parent Silicon Valley Bank.

But a global rout in stocks continued on Monday, with European banks shedding as much as 6 per cent on the day. That left them on track for their worst two-day drop since the Ukraine war began in February 2022. HSBC shares were down 3.8 per cent.

The rescue of SVB UK was welcomed by British government ministers, regulators and technology start-ups, who said customers would be able to bank as normal.

“HSBC is Europe’s largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them,” Britain’s finance minister Jeremy Hunt said. “We were faced with a situation where we could have seen some of our most important companies - our most strategic companies - wiped out, and that would have been extremely dangerous,” Hunt told reporters.

Asked about HSBC’s white-knight role, Hunt said his priority had been to avoid using British taxpayers’ money. One pound is worth $1.21.

The Bank of England said it had organised the sale to underpin confidence in the financial system and minimise any fallout for British technology firms.

It said deposits at the bank were safe as a result of the sale, and that the wider banking system was safe.

“On the face of it appears a good deal,” Richard Marwood, senior fund manager and HSBC investor at Royal London Asset Management, said. “SVB lacked liquidity and depositor confidence - HSBC has both of those in spades.” SVB UK is ringfenced from the US group, and HSBC said the assets and liabilities of the parent company were excluded from the transaction.

“This acquisition makes excellent strategic sense for our business in the UK,” HSBC CEO Noel Quinn said in a statement.

SVB UK has loans of around 5.5 billion pounds and deposits of around 6.7 billion pounds, HSBC said, adding the takeover completes immediately.

The Bank of England said SVB UK had a total balance sheet size of around 8.8 billion pounds.

Unlike the United States, Britain has not announced broader liquidity measures for the banking system.

Dozens of listed British companies issued statements on Monday about their exposure to SVB UK, seeking to reassure investors - or in some cases warn them - just as news of the rescue deal was announced.

THG, an online retail platform, card maker Moonpig and Naked Wines issued statements saying they were either not exposed or did not expect to be affected. Diaceutics had said its liquidity would be impacted.

Industry bodies representing start-ups welcomed the takeover deal for shielding them from financial turmoil, including the biotech sector where about 40 per cent of companies banked with SVB UK.

“ knew that this was absolutely crucial for our sector and companies would be going down this morning if there wasn’t a solution,” Steve Bates, chief executive of Britain’s BioIndustry Association told Reuters. Other potential buyers for SVB UK had included Bank of London, which said on Sunday it had submitted a formal proposal. SoftBank-owned lender OakNorth Bank also considered bidding, a person with knowledge of the talks told Reuters. Abu Dhabi state-backed investment vehicle ADQ was also looking, according to media reports.

Meanwhile bank shares in Europe and Asia plunged on Monday as the United States’ move to guarantee the deposits of the collapsed tech-focused lender Silicon Valley Bank failed to reassure investors that other banks remain finacially sound.

Europe’s STOXX bank index fell 4.3 per cent, having shed 3.78 per cent on Friday, leaving it on track for its biggest two-day fall since Russia invaded Ukraine in February 2022.

Commerzbank AG fell as much as 12 per cent, Credit Suisse Group AG was down almost 11 per cent as lenders across Britain, Italy and Spain also fell.

Trading volumes were also high, running at 160 per cent of the one-month average for the EURO STOXX 50 according to a note seen by Reuters, while Europe’s volatility index jumped to the highest level since October 2022.