After a sudden collapse on Friday, HSBC acquires the UK subsidiary of Silicon Valley Bank for one pound. The British government has struck a deal to save British startups from big losses.
Addressing the situation in a tweet, British finance minister Jeremy Hunt said, “This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise".
US lender Silicon Valley Bank Financial Group, which owns about $209 billion in assets, was the 16th biggest lender in the US and was the go-to bank for several startups worldwide and became the largest bank to fail since the 2008 financial crisis.
In the previous year, the bank was severely affected by the downturn in technology stocks and the Federal Reserve's plan to increase interest rates to combat inflation. This downturn resulted in a sudden collapse after the bank's clients, many of which were venture capital firms and VC-backed companies, began pulling out their deposits.
HSBC Group CEO Noel Quinn 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. We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and worldwide. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety, and security of HSBC. We warmly welcome SVB UK colleagues to HSBC; we are excited to start working with them”.
As per their regulatory filing last week, SVB has a negative cash balance of $958 million. SVB’s shares have also plunged 41 percent, its biggest slump since 1998. “Despite the bank being in sound financial condition before March 9th, investors and depositors reacted by withdrawing $42 billion of deposits, causing a run on the bank," said the filing.
British Prime Minister Rishi Sunak said his government was working to limit any fallout for companies from the bank's demise. At 7 a.m., the UK government struck a last-minute deal for HSBC to buy Silicon Valley Bank’s UK operations. The takeover will override the Bank of England’s initial decision to place SVB UK into insolvency.
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