Silicon Valley Bank (SVB) is saved at the nice of time.
The Hongkong and Shanghai Banking Corporation (HSBC) is officially acquiring the formerly doomed bank through its UK subsidiary after a weekend of negotiations from the UK government, regulators, and more than a few companies looking to buy the bank.
SVB collapsed on itself due to a run on the bank, making it unable to access cash to meet client withdrawals.
HSBC-SVB Acquisition Details
UK's Chancellor of the Exchequer, Jeremy Hunt, recently announced through Twitter that the UK government and the Bank of England aided a private sale of SVB to HSBC UK, saving the former from total collapse. According to HSBC's statement on the matter, it only has to pay $1.21 to get SVB for itself, and acquiring the bank makes "excellent strategic sense for its business in the UK."
The bank mentioned that its acquisition of SVB, which will complete immediately, strengthens its commercial banking franchise and enhances its ability to serve innovative and fast-growing firms in the UK and in other countries, including in the technology and life-science sectors.
Meanwhile, the acquisition deal is a massive relief to the UK technology sector because it was "highly exposed" to SVB's collapse and its UK arm, per Tech Crunch. Its collapse would have left a significant impact on British technology companies since SVB is an important lender to some of them, with more than 250 UK tech firm executives receiving a warning that SVB's failure would pose an "existential threat" to the sector, per Reuters.
The same can also be said about SVB, which will continue to operate as before. According to the bank's statement on the matter, all services will continue to operate as usual, and customers shouldn't notice anything different.
It also announced that thanks to HSBC's acquisition, it will no longer apply to the Court to place itself into a Bank Insolvency Procedure.
Additionally, Hunt mentioned that the acquisition saved clients' deposits with the bank, with it requiring no taxpayer support to do so.
"I said yesterday that we would look after our tech sector," Hunt mentioned. "And we have worked urgently to deliver that promise."
Why Did SVB Collapse In The First Place?
The acquisition follows SVB's California-based parent company shut down by regulators on Mar. 10 and taken over by the US' Federal Deposit Insurance Corporation due to its share prices collapsing following a failed $2.3 billion capital raise, per Business Insider.
A Forbes article mentioned that SVB Financial Group saw its stock prices crash 60% through Mar. 9 and on Mar. 10 in pre-marketing trading after falling another 69%, forcing regulators to intervene and close down the bank to protect its depositors.
Meanwhile, the group's investors scrambled to withdraw their money after being warned by Peter Thiel's Founders Fund and other tech sector giants, per the New York Post.
But the act that sealed the company's fate was when it invested heavily in US government bonds, including those backed by mortgages, which were seen as safe as houses, per The Guardian. However, because of the inverse relationship of bonds with interest rates, these bonds slowly lost their worth as the global economy fell into a recession.
