HSBC rescues British arm of stricken Silicon Valley Bank

HSBC (HSBA.L) bought the UK arm of Silicon Valley Bank 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.

U.S. authorities launched emergency measures on Sunday to shore up confidence in the banking system after the failure of Silicon Valley Bank (SIVB.O) threatened to trigger a broader financial crisis.

After a dramatic weekend, regulators said the failed bank’s customers will have access to all their deposits starting Monday and set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.

The deal between HSBC and Silicon Valley Bank, 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 U.S. 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 (.SX7P) shedding as much as 6% 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%.

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 U.S. 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 (THG.L), an online retail platform, card maker Moonpig (MOONM.L) and Naked Wines (WINEW.L) issued statements saying they were either not exposed or did not expect to be affected. Diaceutics (DXRX.L) 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% of companies banked with SVB UK.

"[We] 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.

($1 = 0.8273 pounds = 0.94 euro)

(Source: Reuters)