HSBC/SVB UK: Quinn wins political and financial capital

The news that HSBC is buying the UK subsidiary of Silicon Valley Bank has been received warily by investors. No wonder. Government-brokered takeovers of failing banks have a bad name in the UK. Blame Gordon Brown, the prime minister who strong-armed Lloyds into absorbing HBOS — and billions of losses — during the financial crisis.

Once again, the context is a US banking failure triggered by a drop in the value of mortgage-backed securities. Within this, there is again a risk of contagion to the wider financial system.

But assessed in isolation, HSBC’s purchase of SVB UK is a different deal for a different time. It is unlikely to backfire spectacularly.

HSBC hopes to make a net gain from the takeover. SVB UK operated under its own local banking licence, implying adequate capitalisation. It invested primarily in short-term, liquid assets, in contrast to its parent’s hefty position in mortgage-backed bonds.

SVB UK’s estimated tangible equity of £1.4bn may yet evaporate under the scrutiny of its books. But the figure itself is no more than a rounding error for HSBC, a bank with total equity of about $200bn according to S&P Capital IQ.

The takeover was described as “fully competitive” by officials. Given HSBC is paying a nominal £1, this means two things. First, other banks must have asked for guarantees HSBC did not seek, though regulatory easing may be part of the package. Second, HSBC chief executive Noel Quinn was willing to ink a deal before UK markets opened on Monday. Chaos following Liz Truss’s disastrous mini-budget last autumn has made politicians fearful of panic selling.

Quinn should therefore bank some political capital as well as the financial kind. His Asia-focused bank needs this at a time of heightened east-west tensions. He has saved UK authorities from a couple of awkward outcomes. They do not need to guarantee all deposits, as US peers have done. And for them a familiar, UK-listed bank is a better rescuer optically than Middle Eastern money.

SVB UK, banker to some 3,300 UK tech start-ups, also fits comfortably into Quinn’s longstanding narrative. This frames HSBC as a bank that nurtures entrepreneurs and their businesses across retail and commercial banking silos.

The transaction cannot, however, immunise markets in the UK or elsewhere from contagion that might originate in the US. Big US banks are well-capitalised. We will soon find out whether the same applies to their numerous smaller peers.

Lex: a sum of the pars exercise

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