HSBC rescued the UK arm of Silicon Valley Bank by buying it for a nominal amount of one pound on Monday, thus saving a key lender for technology start-ups in Britain, as the largest bank collapse since the financial crash continued to cause turbulence in markets.

The purchase marks one of the world’s largest banks with $2.9 trillion in assets taking the failing British division of the tech lender under its wing. The transaction concluded after a weekend of frantic negotiations between regulators, the government, and potential buyers. The deal comes after US authorities intervened to protect deposits and stem wider contagion following the sudden collapse of Silicon Valley Bank’s parent company on Sunday.

The rescue of SVB UK was lauded by British government ministers, regulators, and technology start-ups, who claimed that customers would be able to bank as usual. The Bank of England stated that the sale was arranged to maintain trust in the financial system and reduce the fallout for British technology firms. Deposits at the bank are now secure, and the overall banking system is safe.

The purchase of SVB UK by HSBC has been widely seen as a positive move, given that SVB UK had liquidity and depositor confidence issues, while HSBC possesses both in abundance. SVB UK has loans of about £5.5 billion and deposits of about £6.7 billion. The Bank of England stated that SVB UK has a total balance sheet size of about £8.8 billion.

Photo: Andrey Rudakov/Bloomberg via Getty Images

Industry organizations representing start-ups praised the takeover deal for shielding them from financial turmoil, including the biotech sector, where around 40% of firms banked with SVB UK. Several potential buyers, such as Bank of London, SoftBank-owned lender OakNorth Bank, and Abu Dhabi state-backed investment firm ADQ, had expressed interest in purchasing SVB UK.

The acquisition is an excellent strategic move for HSBC’s UK business, according to CEO Noel Quinn. The US parent company’s assets and liabilities were excluded from the purchase, and SVB UK was ringfenced from the American group. Dozens of listed British companies issued statements on Monday regarding their exposure to SVB UK, assuring or warning investors, just as the news of the rescue deal was made public. Unlike the United States, Britain has not implemented wider liquidity measures for the banking system.

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Source: Vietnam Insider

Silicon Valley Bank Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure.

The sale of 12,451 shares on Feb. 27 was the first time in more than a year that Becker had sold shares in parent company SVB Financial Group, according to regulatory filings. He filed the plan that allowed him to sell the shares on Jan. 26.

U.S. banking regulators on Friday assumed control of Silicon Valley Bank, the country’s 16th largest bank and a top financial institution for technology and life sciences companies.

This is the largest bank failure since Washington Mutual in 2008.

Federal Deposit Insurance Corp. (FDIC) created a new bank into which all of SVB’s deposits were transferred, and said that “all insured depositors will have full access to their insured deposits no later than Monday morning,”

One big caveat is that deposits only are insured to up to $250,000, so FDIC added that it “will pay uninsured depositors an advance dividend within the next week.”

FDIC added that all of SVB’s physical bank branches will reopen on Monday morning.

SVB had approximately $209 billion of total assets and $175 billion in deposits at year-end 2022, but the FDIC says its current deposit total is “undetermined.”

SVB thus far has not quantified how much money walked out the door yesterday, after a $2.25 billion share sale plan sparked a run on the bank.

A seemingly endless number of second-order effects, including other banks may lend more cautiously, including SVB rivals that currently are swimming in new deposits.

The Fed could become more reluctant to keep pushing interest rates higher. On Friday, the market-priced odds decreased that the central bank will enact a super-sized half-point rate increase (although that also could be a reaction to the February jobs report).

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Source: Vietnam Insider