On Monday (March 13), the Rishi Sunak-led-British government facilitated the sale of the UK arm of the now-defunct ‘Silicon Valley Bank (SVB)’ to HSBC’s ring-fenced subsidiary, HSBC UK Bank.
According to HSBC, SVB UK had a profit of £88m before tax for the financial year ending December 31 last year. It added that the bank had loans totalling £55 bn, deposits of around £7bn and tangible equity of around £1.4bn as of March 10, 2023.
The acquisition was reportedly made for £1 (₹99.22). Interestingly, the assets and liabilities of SVB UK’s parent company are not included in the transaction.
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
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
In a tweet, Chancellor of the Exchequer 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.”
In a statement, HSBC CEO Noel Quinn informed, “Acquisition makes excellent strategic sense for our UK business…SVB UK customers can bank as usual, safe in the knowledge their deposits are backed by the strength, safety and security of HSBC.”
The transaction was facilitated by the Bank of England under powers granted by the Banking Act 2009, after consulting the UK Treasury. “No taxpayer money is involved and customer deposits have been protected,” the latter had emphasised.
Silicon Valley Bank UK has today been sold to @HSBC.
— HM Treasury (@hmtreasury) March 13, 2023
This transaction has been facilitated by the @bankofengland in consultation with HM Treasury.
No taxpayer money is involved and customer deposits have been protected.
Find out more ⬇️https://t.co/Dmfjdx7duC
The Collapse of Silicon Valley Bank
On Friday (March 10), the Federal Deposit Insurance Corporation (FDIC) announced the shutdown of the US-based Silicon Valley Bank (SVB) and the seizure of its assets.
The development resulted from the sudden shutdown of Silvergate Capital Corp and the unmindful fundraising of SVB, which created panic in the technology industry.
Founded in 1983, Silicon Valley Bank operated out of Santa Clara in California and provided various services such as online banking, treasury management, and foreign exchange trade.
Reportedly, the crisis came to light on March 8 this year after SVB Financial Group (parent organisation of Silicon Valley Bank) announced a sale of $21 billion of its securities.
FDIC: “Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.” pic.twitter.com/trqGu83CUB
— Steve Lookner (@lookner) March 10, 2023
This was further worsened by the sale of company shares worth $2.25 billion to shore up its finances, prompted by high deposit outflows at the bank, caused by a downturn in the startup industry. As a result, the Silicon Valley Bank shares fell 60%, leading to a whopping loss of $80 billion.
To salvage the business, SVB CEO Greg Becker held a conference call with clients and venture capital investors, requesting them to “stay calm” to avoid further withdrawals.
However, it was to no avail. Many venture capitalists instead instructed portfolio companies to minimise their exposure to Silicon Valley Bank, withdraw their cash, and look for other lenders (thus further exacerbating the crisis).
In February this year, American business magazine Forbes placed SVB Financial Group in the 20th position in the list of ‘America’s Best Banks.’
