Why HSBC is paying £1 for the UK arm of failed US bank SVB

London: The UK arm of failed US lender Silicon Valley Bank has been bought by Hong Kong and Shanghai Banking Corporation (HSBC) for a nominal £1 (Rs 99.14) in a rescue deal, the government and HSBC announced Monday. The sale, overseen by the Bank of England and the Treasury, comes after SVB collapsed Friday sparking panic in Britain over its key customers in the technology and life science sectors. “Silicon Valley Bank (UK) Ltd has today been sold to HSBC,” the government said in a statement after frantic talks reportedly led by Prime Minister Rishi Sunak. “This transaction has been facilitated by the Bank of England, in consultation with the Treasury.” Also Read: Will Silicon Valley Bank collapse impact India? Deposits protected Finance Minister Jeremy Hunt added that no government cash was involved, while all customer deposits have been safeguarded. “This (deal) ensures customer deposits are protected and can bank as normal, with no taxpayer support,” added Hunt. “I am pleased we have reached a resolution in such short order.” Hunt had warned Sunday that there was a “serious” risk to Britain’s tech and life sciences firms that banked with SVB.

HSBC agreed to pay just £1 for the business, the bank giant added in a separate statement on Monday.

The Asia-focused lender added that SVB UK had loans of about £5.5 billion (Rs 54 lakh crore) and deposits of around £6.7 billion (Rs 66 lakh crore). “This acquisition makes excellent strategic sense for our business in the UK,” said HSBC chief executive Noel Quinn. “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.” [caption id=“attachment_12284202” align=“alignnone” width=“640”] Finance Minister Jeremy Hunt announced that no government cash was involved in the deal and that all customer deposits have been safeguarded. AP[/caption] The deal excluded assets and liabilities of SVB UK’s parent companies, while HSBC expects a gain to arise from the acquisition. SVB UK’s customers “can continue to bank as usual” and will be “safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC”, Quinn noted. Also Read: US closes Silicon Valley Bank in biggest collapse since 2008 California-based SVB failed after its customers, mainly from the tech sector, made massive withdrawals, and after its latest attempt to raise new money proved unsuccessful. Its demise is not only the largest bank failure since Washington Mutual in 2008, but also the second-largest retail bank failure in the US.

Monday’s news sent HSBC stock sinking in early London deals.

HSBC’s share price slid 2.5 per cent to 578 pence on the capital’s falling FTSE 100 index. ‘Hugely welcomed’ before budget London’s FTSE 100 and other European stock markets fell sharply on Monday despite the US and UK moves. But interactive investor analyst Victoria Scholar said HSBC’s acquisition of SVB UK was a “welcome development for its depositors and the wider banking system”. “It means that SVB UK will avoid insolvency proceedings and its customers will be able to access deposits and banking services as normal from today,” she said. [caption id=“attachment_12284222” align=“alignnone” width=“640”] The deal excluded assets and liabilities of SVB UK’s parent companies, while HSBC expects a gain to arise from the acquisition. AP[/caption] Monday’s news will also be a relief for the UK government, with Hunt due to unveil his latest budget on Wednesday against the backdrop of soaring living costs. The SVB UK sale “will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day”, noted Hargreaves Lansdown analyst Susannah Streeter. “A big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.” Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook , Twitter and Instagram .