HSBC Buys Out SVB's UK Arm With £5.5 Billion in Loans and £6.7 Billion in Deposits for Symbolic £1

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HSBC bought the British arm of Silicon Valley Bank for a symbolic price of one pound in a deal sanctioned by the Bank of England (BoE). The deal to buy out the collapsed California-based tech avoids potential adverse fallout for the UK companies that have deposits and investments in the bank. The takeover will be completed immediately, according to reports.

Britain's finance secretary Jeremy Hunt said the deal with HSBC will being a sense of safety to the exposed clients of the tech-focused American bank that went belly up last week.

HSBC announces pay, hiring freeze
A Swiss International aircraft flies past the HSBC headquarters building in the Canary Wharf financial district in east London February 15, 2015 Reuters

Strategic Merit

"HSBC is Europe's largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them .... 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 said, according to Reuters.

HSBC CEO Noel Quinn said the acquisition makes an "excellent strategic sense for our business in the UK." SVB UK has a total balance sheet size of around £8.8 billion, according to the Bank of England. Its loans in the UK stand at £5.5 billion and deposits are about £6.7 billion, according to HSBC.

World's Biggest Bank

HSBC is one of the world's biggest banks, and has assets worth nearly $3 trillion under its watch.

SVB Financial
SVB Financial Twitter

The bank's shares were down 3.8 percent on Monday, following the buyout news. However, HSBC apparently fared better than the rest of the banking stocks in Europe, which marked a 6 percent fall. This followed a continued rout in banking stocks in the United States after the collapse of Silicon Valley Bank (SVB), which was the 16th largest American bank.

The rescue deal brought relief to market participants and UK tech companies that had exposure to SVB. Several British tech startups had gone public about their exposure to SVB, highlighting cash flow constraints generated by the sudden demise of a huge American bank.

Closed by Regulators

"On the face of it appears a good deal ... SVB lacked liquidity and depositor confidence - HSBC has both of those in spades," Richard Marwood, senior fund manager and HSBC investor at Royal London Asset Management, said, according to Reuters.

Silicon Valley Bank was shut down by California regulators on Friday and US Federal Deposit Insurance Corporation (FDIC) took over the failed bank, marking the biggest bank failure since 2008 in the United States.

Bank of England, London
Bank of England, London Wikimedia Commons

The HSBC deal comes amid efforts by the US Federal Deposit Insurance Corporation (FDIC) to find another bank that would merge with SVB to manage the crisis. According to FDIC, the crisis can be stemmed if it can seal a merger deal by Monday. If such a deal emerges, the unsecured deposits can be safeguarded.

Meanwhile, another US bank too bit the dust in the aftermath of the collapse of SVB and the adverse pressure it created on the banking sector. Signature Bank had 38 private client offices located in New York, Connecticut, California, and North Carolina.