London-listed bank HSBC has acquired the UK operation of the failed Silicon Valley Bank for £1 (about $1.22), saving UK startups and investors from likely massive losses.
The takeover, which will protect customer deposits, was arranged by the Bank of England with the UK Treasury using powers derived from post-crisis banking reforms. It did not use taxpayers’ money.
SVB UK is a fraction of the size of SVB, which is the 16th-largest bank in the US. Unlike its parent, the business had invested mainly in short-term liquid assets and did not have massive exposure to mortgage-backed bonds that had lost value amid rising interest rates, leading to SVB’s failure.
According to the Bank of England, SVB UK had a balance sheet size of around £8.8 billion, and a deposit base of roughly £6.7 billion. However, the Bank of England said the scale of the deterioration of liquidity and confidence meant that the UK unit’s position was not recoverable. Nevertheless, investors have welcomed news of the deal.
“This was an enormous amount of work over the weekend by many different people in order to keep the main thing the main thing and it’s a very strong outcome,” said Danny Rimer, a partner at Index Ventures, in a LinkedIn post. “The relief is palpable.”
In a statement, Michael Moore, the director general of the British Venture Capital Association, also said it was welcome news, adding: “Confidence should return to markets and the affected businesses with an orderly transition and access to the cash frozen over the weekend. We continue to monitor the situation and will analyze the details as they emerge later.”
HSBC’s rescue comes a day after the US government said it would step in to protect customers’ deposits with the parent bank by using premiums paid by other lenders. Governments and regulators on both sides of the Atlantic have put in place measures to safeguard startups’ funds after SVB ran into difficulties.
While SVB UK’s quick takeover has mitigated some of the fallout in the UK, more knock-on effects are expected. US Treasury prices have risen in expectation of another U-turn in interest rate policy and as stocks across the globe slide, especially in the banking sector.
Andrew Woodman contributed to reporting.
Featured image by Anadolu Agency/Getty Images
