HSBC's acquisition of Silicon Valley Bank's (SVB) British arm is set to boost its exposure to high-growth technology and life sciences companies in a relatively risk-free transaction that will see the bank invest about £2 billion (US$2.4 billion) into the lender.
In doing so, the London-based lender gained about £5.5 billion in loans and £6.7 billion in deposits, without taking on any of the liabilities of SVB UK's parent. HSBC also gained greater scale and standing with Britain's tech industry, a key area the UK government is targeting for future growth.
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"I think the ability to immediately close this acquisition is net positive for HSBC, though not very large relative to the size of the whole global bank," said Michael Makdad, senior equity analyst at Morningstar.
SVB UK's loan exposure would only represent about 0.7 per cent of HSBC's total loan portfolio globally and its deposit size is about 0.5 per cent of its total deposit base, Makdad said.
The business will be acquired by HSBC's UK ring-fenced bank, with HSBC CEO Noel Quinn and Ian Stuart, the head of its UK business, telling technology investors in London on Monday that they planned to inject £2 billion in liquidity into SVB UK to ensure it could continue its business as usual.
On Monday, Quinn said the deal makes "excellent strategic sense" for its UK business.
"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," Quinn said.
HSBC CEO Noel Quinn attends the Global Financial Leaders' Investment Summit at Four Seasons Hotel in Central in November. Photo: Sam Tsang alt=HSBC CEO Noel Quinn attends the Global Financial Leaders' Investment Summit at Four Seasons Hotel in Central in November. Photo: Sam Tsang>
In addition to giving HSBC greater scale with tech firms in Britain, the transaction matches the bank's ambition to be a go-to lender for high-growth companies in the regions where it operates.
For example, the bank unveiled a US$250 million fund for hi-tech growth start-ups in India last June.
The deal comes as UK Chancellor of the Exchequer Jeremy Hunt said earlier this year that he wants to make Britain "the world's next Silicon Valley".
"If anyone is thinking of starting or investing in an innovation or technology-centred business, I want them to do it in the UK," Hunt said in a speech at Bloomberg's European headquarters in London in January. "I want the world's tech entrepreneurs, life science innovators, and clean energy companies to come to the UK because it offers the best possible place to make their vision happen."
UK Chancellor Jeremy Hunt leaves 10 Downing Street on Oct. 14, 2022, in London. Photo: Getty Images/Tribune News Service alt=UK Chancellor Jeremy Hunt leaves 10 Downing Street on Oct. 14, 2022, in London. Photo: Getty Images/Tribune News Service>
As part of the country's strategy to attract tech investment, Hunt pledged an additional 2.3 billion of funding for education over the next two financial years ending in 2025 as part of the Autumn Statement in November. Hunt will reveal the government's next budget later on Wednesday.
Last July, HSBC's UK business committed £250 million to a new "growth lending" fund to assist tech companies that have moved from the start-up to scale-up phase in their development after the government called for additional investment in the sector.
The bank's UK arm also has a £500 million fund for small and medium-sized enterprise (SME) tech businesses as part of a broader £15 billion lending programme to support SMEs in Britain.
The collapse of SVB was a concern for Hunt, as he attempts to generate growth as the UK navigates a period of high inflation and a weak economic outlook.
The Alphabeta Building, where the offices of Silicon Valley Bank UK (SVB) are based, is pictured in London on March 12, 2023. Photo: Agence France-Presse alt=The Alphabeta Building, where the offices of Silicon Valley Bank UK (SVB) are based, is pictured in London on March 12, 2023. Photo: Agence France-Presse>
"There is a serious risk to our technology and life sciences sector, many of whom bank with this bank that most people won't have heard of, the Silicon Valley Bank," Hunt told Sky News on Sunday. "It happens to look after the money of some of our most promising and exciting businesses."
The Bank of England placed SVB's UK arm into insolvency proceedings hours after California regulators seized control of its parent company on Friday. It was the second biggest bank failure in US history and the largest since Washington Mutual failed during the global financial crisis in 2008.
The aftermath of the collapse has continued to pressure financial stocks, with HSBC's shares falling 4.7 per cent to close at HK$53.65 in Hong Kong on Tuesday, its third straight session of declines.
UK government officials scrambled to find a buyer over the weekend, fearful that British technology firms would face a debilitating cash crunch if they were unable to access capital and pay their staff following the bank's closure.
HSBC, seen as a stable choice, ultimately beat out OakNorth Bank, which is backed by Japan's Softbank Group, and Bank of London for SVB UK.
"The speed of the response by the Treasury shows the importance it places on the UK technology and healthcare sectors and their contribution to the economy," John Glencross, CEO and co-founder of Calculus, a UK investor targeting high-growth firms, said.
"Prime Minister Rishi Sunak reinforced this, stating he will always be on the side of entrepreneurs and innovators. The UK venture capital, start up and scale-up community should feel reassured by the outcome," he said.
