Silicon Valley Bank's UK arm bought by HSBC for 1 British pound in rescue deal Just three days ago, the Bank of England planned to apply to place Silicon Valley Bank UK into insolvency by Sunday night due to it having a "limited presence in the UK and no critical functions supporting the financial system." Yet its officials instead spent a dirty rainy weekend with Prime Minister Rishi Sunak, Chancellor …
This isn't a bailout, and neither the government, nurses, doctors, teachers or you have spent a penny on it.
HSBC bought the (profitable) SVB UK business for £1 - https://www.bbc.co.uk/news/business-64937251
"Silicon Valley Bank UK was in reasonable financial health when it was bought for £1 by HSBC. It had adequate capital and was making reasonable profits."
It was force-sold to HSBC to ensure the chaos of its parent bank didn't impact the significant number of tech business that bank with SVB UK.
In other words, this is "A Good Thing" - plenty other political topics for you to get your pants in a twist about.
Ok Voice of Truth,
Why don't you put yourself in the position of an MD of one of the companies who banked with SVB in the UK. If they lost everything but £75K then a good number of those businesses would be TITSUP by the end of the week.
What would you do after telling your staff that because of the failure of the company bank, they were all out of a job AND that the company would be unable to pay them for March 2023.
Go on... Please tell us what you would rather have happened?
While I think that this government is a bunch of useless twats, I think that the actions over the weekend deserve a small round of applause.
Tomorrow? the Brickbats will resume.
I'm not doubting anything that you wrote. Only, very specifically what I wrote above, that it is very unusual to be able to buy a profitable business for £1. I understand about taking on (unspecified) debts and liabilities. That's fine. But if the business is profitable, it still seems very strange.
Brighton Pier was once sold for £1, I seem to recall. Maybe it wasn't Brighton but it was one of the old piers. The thing is that it immediately required a lot of money to make it seaworthy(?) or safe again. That's why it was £1. If it had been safe and in good condition it would not have been £1.
The problem isn't the profitability of the bank, but the assets. Let's say they have £100m of loans owed to them, and they've got deposit balances of £120m. That means they're currently holding £20m. What happened in the US was that companies wanted to withdraw more than £20m. The bank can't call in its loans early, so is technically bankrupt.
To carry on your example, it's possible that the bank "needs" £100m of work, because that's how many companies could withdraw their money tomorrow. HSBC are then left with a trickle of money coming in over the next few years.
Thanks, that explained the issue nicely - the available liquid assets that the bank held were less than the transitory demands of their customers even though the overall operation had a positive asset value.
In this scenario a larger bank with greater available liquid assets taking over the smaller bank is a fair and reasonable option. There would be some non-trivial costs with taking over the operations to consider and pay for as well but as long as the cost of these compared to the smaller bank's assets are fair then buying it for the traditional nominal £1 isn't unreasonable.
Questions would have to be raised about the quality of the loans that the bank had, as this was the problem with the previous US initiated banking failure where they found that due to a mire of loan repackaging they often found that they'd loaned themselves the same underlying loan multiple times but it was obscured and more critically many of the original loans were poorly rated (sub-prime loans) but this fact was obscured too when they were repackaged.
Let's first consider a fictional example. I have a company that makes a specific kind of software and I have some clients. Next month, they'll be paying me £200k. However, in order to build this, I've taken on debts, and next week, I have to pay £100k for the next payment. This is the report of a profitable business, as my revenues exceed my debts. If I have cash in the bank, this is great, because I can pay my bill and, a couple weeks later, I have money again. However, if I don't have cash in the bank, problems could start to happen. If I can't make any payments right now because I've run out of cash, then I'll be in default on my debts and I won't be able to pay for other things, like my employees or my operations bills. If I can't pay those bills, my software might not earn me so much money anymore because I've been unable to support it because my staff have quit because I didn't pay them. Yet I don't have any more money to pay these bills myself and I can't just borrow more money for the next month.
Enter you. You have £100k sitting around and you like the idea of my profitable business. If you buy it off me, you can pay my bill with your cash and take the resultant profit for yourself. I might want to keep my business, and I might suggest to you that it's best for you if you let me stay. However, in this analogy I'm at the point where, if I don't take your support, I'll crash the company and have it taken off me anyway. In this situation, you can probably get the company for a pretty good price even though in the long term, I would have made a good profit from it.
In a liquidity crisis, this bank finds that it doesn't have enough cash on hand to pay everyone who wants their cash. If they were able to hold their loans for the length they planned, they would have that cash, but people want their money out now and selling off the loans now will incur losses. HSBC has plenty of money they can use to provide cash to people who want it, which also means that some people who don't need the cash now, just don't want to lose it, will leave it there. They can hold those loans for their original length and take the profit they generate.
I am not sure if tax payer money were used to facilitate this rescue operation at this time.
It was not, as has been clearly stated in all the news coverage.
Even for the US bank, the problem wasn't that it went bust, it was insolvent, i.e. it couldn't turn enough assets into cash to pay all the people who tried to withdraw their money, a classic "run" on the bank.
The UK bank remains solvent, not least because customers needed to give 30 days notice for most withdrawals, but it was feared that the US bank's problems would drive the UK one into difficulties. The sale to HSBC is clearly intended to send the message that it's still solid.
This clearly needs to be said more than once. You can go to SVBs website, look at their financial reports, and draw your own conclusions. The problem has been there staring everyone in the face on the balance sheet for four years. The precipitating fact was the bank run, but it wasn’t a panic run. It was a justified, rational pull of money once everyone realised that SVB was net asset-negative, badly so. And even now, barely a fraction of the losses have been realised.
The problem is that only 30% of its assets are in depositor loans, which would be the normal business of a bank. About $130bn were in gov bonds, on which it had taken a huge speculative loss. The bank run triggered after it had sold just $30bn of those, crystallising a partial loss, and tried to recapitalise. On that measure, it is marginally (although not quite) solvent. But *it still has $100bn gov bonds on its books*. It has a further $15bn losses to crystallise. *Thats* why nobody wants to take it on and rescue it.
The U.K. bank may or may not be Ok. It’s probably just an operating arm, in which case it is likely slightly profitable. But, the ownership structure will need to leave it with at least a 8% share of the underlying “assets” (ie mark-to-market loss on US gov bonds) as tier 1 banking reserve to operate a U.K. banking license. The publically accessible company accounts don’t break it out like that, which means *only insiders know the actual number*.
Hence, £1 value.
People need to understand this cost of living crisis is causing problems for everyone. We should all rally round this bank and do whatever is needed to save it for the sake of the shareholders and rich people with dumb startups whose money it holds. The same rich people that took as much as they could before it collapsed.
Seriously though who calls their bank "silicon valley bank". You are pretty much asking for trouble with that name. Anyway I'm off to invest in whatever crypto currency is being promoted on twitter. Wish me luck.
I don't think it's being saved for for shareholders. In fact the shareholders have got exactly £1 from it. That's between them.
If it went had gone various UK firms banking with it might not have been able to pay their staff or their suppliers. Some of the unpaid suppliers may then have not been able to pay their staff or suppliers. The number of people potentially affected could be quite considerable. Who knows, you might have been one of them. Are you one of those rich people?
Ask not for whom the bell tolls./It tolls for thee. How does the next line go?
Well, having dealt with (over the past 40 years or so) :- TSB, Lloyds, NatWest, Halifax, BoS, RBS, Yorkshire/Clydesdale/Virgin and probably some I have rightly forgotten about, then I'm not sure I would want a "british owned" bank to be involved in anything.
I think even The Bank of Musk could do better.
It used to be held in trust (for the savers and debtors) by the government. The government decided it could sell the bank and keep the money. Technically a breach of the trust and illegal, as the Scottish courts determined. But that's okay, because at the time the government could get the House of Lords could overrule any court decision it didn't like. They haven't been able to do that since the Supreme Court was introduced, but the current lot much prefers the law of "do what I say not why I do" and is looking at ways of removing the supremacy of the Supreme Court. And all in the name of democracy, which has come to mean anything we like and nothing you do.
@Charlie Clark"It used to be held in trust (for the savers and debtors) by the government. The government decided it could sell the bank and keep the money."
The government did not sell off TSB they never owned TSB, you may be thinking of Girobank, that the Tory government did sell off (privatise). TSB plc was an amalgamation of the various trustee savings banks in the UK sometime in the 80s. TSB plc later merged with Lloyds Bank in the 90s to form Lloyds TSB Bank, Then sometime in the late 2000s after the last banking crash Lloyds had to divest themselves of TSB which Santander acquired. Now I am not sure what Santander got but in my view as Lloyds Bank customer it was not the TSB that merged with Lloyds.
Why? Well I bank with Lloyds because they merged with TSB and they had no choice but to accept me as a customer. They did not want me as a customer they made that clear two years earlier when the turned me down for a current account I needed to get my student grant paid into. To be fair they had good reason to refuse, in the previous 2 yeas at University I had managed run up debt at the other 3 banks Natwest, Midland and Barclays. TSB was the only bank I found I could get a current account with. A heavily restricted current account, no checkbook, no debit card, just cashpoint card. Restrictions that Lloyds kept in place at the time of the merger even though I was employed my first programming job after University.
Lloyds continued to make it clear they did not want me as a customer by keeping those restrictions in place for four years. Then it changed, they make an appointment to see an advisor. The restrictions were lifted, in fact I should not still have been on restrictions it must have been an oversite said the advisor. Here's you checkbook and debit card, your overdraft facility is this. Would you like a credit card, sure, what limit would you need, can I have £x, sure but you can have up to £y, no £x is fine. Would you like a loan, we do mortgages as well.
So why the change is it because a few months earlier I had paid off 2 CCJs (thanks Midland, Barclays for them). No, it's because 8 months earlier I had started a job with a much higher wage than I had been earning in my first four years after University followed by two large pay rises in the first 6 months, resulting in a lot of money in my account. My salary was fast approaching the 40% tax bracket.
Since then then we have had a great relationship, they regularly invite me in for a chat and a cup of tea. I have had loans and a mortgage from them all paid off in time. Savings account ISA etc. So I can see I am the sort of customer they would like to keep, which they did when the divested themselves of TSB. But as I was originally a TSB customer should my account not have been transferred back to TSB. The old branch has gone and my account transferred to the larger Lloyds branch which was directly opposite on the other side of the road.
But my account still has the sortcode from the old TSB branch. So Santander did not get the old TSB I bet that if my account and situation was as it was when Lloyds merged with TSB my account would have been transferred to the new TSB that opened up just down the road form my Lloyds branch.
How would humanity have survived without Trustpilot?
So HSBC bagged over £1bn of equity for a quid. Nice work if you can get it. Wish I'd got in there quick and offered a fiver.
That would be the Hong Kong & Shanghai Banking Corporation. So how is that policy of not flogging next gen tech to the Chinese going, eh chaps?
So HSBC bagged over £1bn of equity for a quid.
Err, no. To a bank, deposits are a liability (they have to pay, on demand, any part of a customer's deposits. This was the original problem with Silicon Valley bank.)
The loans are an asset (the customers will, mostly, pay them back).
So £5.5 billion of outstanding loans, assuming most are going to be paid back, is a good deal for only a quid.
It does. But more importantly it has the cash in hand to provide to banking customers of SVB UK should and when they need it, and the willingness and resources to take over this bank and move its operations into HSBC. I have no idea how much this would cost and while I suspect that the likes of HSBC are used to such processes they are still distinctly non-trivial and costly. The cost of the takeover will have to be discounted against the total asset value of SVB UK, if it's less then the take over is a good one for HSBC and it prevents the collapse of a bank and the trees of companies that are dependent on it.
Considering the litany of AML failure fines it's paid, it doesn't have a good reputation.
News articles are saying HSBC is going to invest £2 billion in capital and then there'll be a 1-2(ish) year project to integrate systems etc, along with layoffs and some gentle asset stripping.
"After this would people actually trust it or just move money else where."
The sums involved with SVB are tiny in comparison with those of one of the largest banks in the world by total assets. If HSBC have made an enormous mistake, that all those with cash on deposit withdrew it tomorrow and the loan book (cash lent long-term to businesses) turned out to be utterly worthless it wouldn't have much impact on HSBC. They paid a pound but took on those risks. Would you be prepared to do the same? A queue outside your front door tomorrow morning of thousands of SVB customers wanting to withdraw their cumulative millions while you are unable to cash-in your assets (the loan book).
If you are financially illiterate, don't wade into financial discussions.
In similar vein, I chose not to spend 5 years at medical school and if you want medical advice, I suggest you consult a qualified, experienced doctor rather than me..
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