FINANSGUNDEM.COM – EXTERNAL NEWS SERVICE
UK bank HSBC has bought the UK unit of Silicon Valley Bank (SVB UK), which went bankrupt on Friday last week, in a last-minute bid for £1. According to the Financial Times, HSBC’s decision was driven by the bank’s eagerness to acquire start-up clients and gambled off the purchase decision without fully analyzing 30% of SVB UK’s credit books.
Bank executives had determined that SVB UK and its clients were a good strategic fit, but had trouble working out a price until the last minute.
After due diligence it was concluded that around 70 percent of SVB UK’s credit book was high-quality lines of credit backed by commitments made by limited partners. The other 30 percent were harder to analyze, but it might be worth the gamble.
When executives realized late Sunday night that no competitors were left, they made an offer of £1.
A source familiar with the process said: “We felt that SVB was really attractive financially, with an equity value of £1.4bn prior to the bank run-off. Late at night, while watching the body language of the government, we felt that there was no other bidder and we said, ‘Let’s do it’”.
The unnamed news source defended the acquisition of SVB UK, saying: “The real question now is how eroded the resources have been since the crisis began. Assets need a lot of review. But ultimately we think the bank’s intrinsic value will be closer to £1.4bn than £1. You can take a lot of risk with this kind of airbag” he stated.
Although SVB UK is a subsidiary of its California-based main unit, it entered a liquidity crisis late last week following the bankruptcy of SVB in the US. A significant portion of its 3,300 tech-focused customers had begun to withdraw their money from the bank.
Finansgundem.comFor HSBC, which is trying to expand its commercial banking business in high-growth sectors such as science, biomedical, technology and non-crypto fintech, the deal was too good to refuse, according to information compiled by HSBC. HSBC CEO Noel Quinn says the acquisition makes ‘perfect strategic sense’.
HSBC believes start-up entrepreneurs can attract clients for its private banking arm, which is a priority area for growth. In the later stages, the bank believes that companies considering an initial public offering can move to the capital markets team.
According to the FT news, a senior executive of the bank said, “We are not gambling with the future of the bank. But it was a good opportunity and it would take two to three years of our strategic plan to build that kind of expertise and client base in the UK.”
Another banker involved in the purchasing process, “There is a tremendous amount of goodwill towards us in the start-up community right now. It has been a great PR for relations with the bank and government” made statements.
Andrew Williamson, Managing Partner of capital management firm Cambridge Innovation Capital, says SVB has spent the last 40 years working closely with companies in the science and technology sectors.
The capital management firm instructed its companies to remove their money from the SVB last week. Now, however, he said they will move the money back to HSBC and that HSBC should see its “supporting ground”.
Vishal Gulati, Managing Partner at healthcare venture capital firm Recode Health Ventures, said he hopes HSBC retains teams of experts with a “deep understanding” of start-ups at SVB.
SVB UK can be easily absorbed by HSBC. With £6.7 billion in deposits and a £5.5 billion loan book, SVB UK represents only a small fraction of its new owner’s $3 trillion global balance sheet.
Often criticized for its conservative culture, HSBC, led by Chairman Mark Tucker, CEO Noel Quinn and UK boss Ian Steward, acted with unexpected humility to buy SVB UK on Sunday. The bank quickly approved the deal between 3 a.m. and 4 a.m. Monday after an expedited due diligence. The UK authorities also saw HSBC as the only and credible suitor and allowed the deal to happen.
HSBC also did not seek any government guarantees for the bank’s debts and pledged to immediately inject £2bn into the SVB UK so that long-term assets could be financed and operations could continue while integrating the business.
HSBC buys SVB UK for £1
£2bn funding from HSBC to SVB
fill the SVB’s space with another Will it fill the bank?