The British unit of HSBC is acquiring the UK-based subsidiary of the Silicon Valley Bank following regulators’ decision in the United States to seize the financial institution’s assets to protect depositors.
According to a statement published by the bank this morning, the assets of the bank were acquired for £1. As of 10 March, the institution’s portfolio of loans was worth £5.5 billion and it had deposits of £6.7 billion.
The transaction has been completed immediately and HSBC said that any profits resulting from the acquisition will be informed in due time.
A Deal That Works Out for Everyone
“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”, commented the head of the HSBC Group, Noel Quinn.
“We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world. 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”, the CEO of the global bank added.
The operation was availed by the United Kingdom’s Financial Conduct Authority (FCA) after the regulator consulted with other relevant institutions that oversee the banking sector including the Bank of England (BoE).
“SVBUK remains authorised by the PRA and FCA. It will operate as normal and the Bank of England and HM Treasury have confirmed depositors’ money is safe as a result of the transaction”, the FCA told the public in a statement released today.
The UK-based subsidiary was the first the bank opened when it started expanding to other latitudes. Its headquarters are located in London and, same as in the US, the institution catered primarily to companies in the venture capital (VC) and tech space.
HSBC’s nod to acquire the bank is good news for depositors as regulators’ inability to find a suitable buyer would have resulted in huge immediate losses to customers whose accounts were insured for just £85,000 for one-person accounts and £170,000 for joint accounts.
Why is SVB UK Being Acquired?
The acquisition of SVB UK comes three days after the Federal Deposit Insurance Corporation (FDIC) in the United States was forced to seize the assets of the California-based bank after customers withdrew over $42 billion from the institution last Thursday.
Two days before, the bank announced losses of $1.8 billion resulting from the sale of US Treasury bonds and mortgage-backed securities whose value suffered a steep decline in the past few months as a result of the Federal Reserve’s multiple interest rate hikes.
The bank was unable to secure money from external parties to shore up its finances and authorities within the US was forced to step in to avoid a full-blown collapse of SVB as this could have severe consequences for the country’s financial system.
By the end of December 2022, the SVB had total assets of $209 billion and $175.4 billion in deposits. Customers in the US were promised by the FDIC that they will have access to their funds by today.
It is important to note that the FDIC insures bank accounts owned by a single person for up to $250,000 and joint accounts for the same figure per co-signer. In addition, corporations, government accounts, and retirement accounts are insured for the same amount.
This amount is guaranteed to depositors regardless of what happens to the bank. Any accounts that have a higher balance must wait until the FDIC liquidates the assets of the bank, settles its debts, and distributes any remaining funds among depositors.
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