HSBC Takes Over Collapsed Silicon Valley Bank's UK Unit In £1 Rescue Deal
British banking major HSBC Holdings Plc has acquired collapsed Silicon Valley Bank’s UK unit in a 1 pound rescue deal, with immediate effect. The move comes after the California-based Silicon Valley Bank was shut down on last Friday by U.S. regulators following the biggest U.S. bank failure since the 2008 financial crisis.
Following the news, HSBC shares were losing around 4 percent in the early morning trading in London as well as around 2 percent in pre market activity on the NYSE.
The Bank of England issued a statement regarding the sale, noting that it has taken the decision to sell Silicon Valley Bank UK or SVBUK to HSBC UK Bank to stabilize the US bank’s unit to ensure the continuity of banking services. It will minimize disruption to the UK technology sector and support confidence in the financial system.
The Bank of England said it took the decision in consultation with the Prudential Regulation Authority, HM Treasury and the Financial Conduct Authority. It was confirmed that SVBUK’s business and all services will continue to be operated normally, and all depositors’ money with SVBUK is safe and secure as a result of this transaction.
Meanwhile, the U.S. finance authorities announced plans to limit the fallout from the collapse of Silicon Valley Bank. The U.S. Treasury and Federal Reserve in a joint statement late Sunday announced decisive actions to protect the U.S. economy by strengthening public confidence in the U.S. banking system.
The move is expected to ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses. The statement said that the Silicon Valley Bank depositors will have access to all of their money starting Monday, March 13, and that no losses associated with the resolution will be borne by the taxpayer.
Silicon Valley Bank had a dramatic collapse on Friday after many clients withdrew their money, expecting that bank may fail in the near future. A Venture capital fund “Founders Fund” reportedly withdrew all its funds from Silicon Valley Bank” by the morning of March 9th.
Following this, the bank’s assets were seized by the U.S. finance authorities due to inadequate liquidity and insolvency. The California Department of Financial Protection and Innovation appointed the Federal Deposit Insurance Corp. or FDIC as receiver of Silicon Valley Bank.
In its latest statement, HSBC said its ring-fenced unit, HSBC UK Bank Plc, is acquiring Silicon Valley Bank UK Ltd. HSBC expects this to strengthen its banking franchise in UK.
The acquisition, funded from existing resources, excludes the assets and liabilities of the parent companies of SVB UK.
For 2022, SVB UK posted a profit before tax of 88 million pounds. As of March 10, SVB UK had loans of around 5.5 billion pounds and deposits of around 6.7 billion pounds. HSBC said the final calculation of the gain arising from the acquisition will be provided in due course.
Noel Quinn, HSBC Group CEO, said, “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.”
In London, HSBC shares were trading at 567.60 pence, down 4.2 percent. In pre-market activity on the NYSE, the bank’s shares were trading at $34.71, down 1.70 percent.
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