HSBC’s Silicon Valley Bank deal is nimble and contrarian
HSBC runs towards the storm as others are fleeing it.
Two thoughts emerge from HSBC’s successful bid to buy the UK arm of Silicon Valley Bank (SVB).
The first seems flippant, but isn’t. We are told by the UK government that there was a fully competitive bidding process for SVB UK. Yet HSBC won it with a bid of a quid. Which begs the question: what on earth did the other bidders offer? Ask to be paid?
The truth is likely to be one of two things, or a combination of them. One is that other interested parties, widely reported to have included Abu Dhabi’s Royal Group and the SoftBank-backed lender OakNorth, offered more, but that the UK government was keen for SVB’s book of UK tech clients to remain in the hands of a UK enterprise – the acquiror is HSBC UK Bank plc, the ring-fenced UK subsidiary of the global bank – and one with the strength and resilience to be able to digest it.
The second is that other interested parties wanted assurances that HSBC did not seek or decided it could live without some sort of backstop, perhaps, if the SVB UK books proved to be troubling.
Either way, it leads us to the next thought. What does HSBC get from this?
HSBC’s statement on Monday told us the numbers. SVB’s UK unit had loans of around £5.5 billion and deposits of around £6.7 billion as of March 10. It recorded a pre-tax profit of £88 million in 2022 and has tangible equity of around £1.4 billion.
It’s a perfect piece of contrarian nimbleness, running towards the storm as others are fleeing it. For a nominal fee, HSBC gets a book of business in an area of strategic interest: technology and life-science sectors in the UK. It gets to curry favour with UK government and regulators, having saved the nation from embarrassment by sealing the deal before markets opened on the Monday morning, which brought a tone of salvation rather than a heavy sell-off. It also saved the UK government from having to guarantee any deposits: guarantees and bailouts still play badly to UK voters a full 15 years after the global financial crisis.
The other side of this is uncertainty about what exactly HSBC has acquired, in terms of the creditworthiness of borrowers, the investments the UK bank had made and other exposures. HSBC is vast enough not to be too badly troubled, even if it turns out SVB UK is lousy. And the upside is considerable: 3,300 UK tech start-up clients, at least some of which might reasonably be expected to thrive. HSBC’s chief executive Noel Quinn gets to look a bit more hip than he usually does.
HSBC has otherwise mainly been trimming, having parted company with operations in Canada, France and the US since 2021. But it isn’t just shrinking. It has made south and southeast Asia a priority for expansion, and the UK still matters to the bank enormously. HSBC also gets to look like a stout friend to the nation – and as we’ve seen in other parts of the world, HSBC can do with friends on the world stage.