- US bank saved by regulators
- UK arm rescued by HSBC
- Depositors in both banks safe
Banking regulators in the US and the UK moved swiftly over the weekend to limit the potential fall-out from the collapse of Silicon Valley Bank (SIVB:NASDAQ) and Silvergate Capital (SI:NYSE) last week.
SVB held deposits belonging to half of all venture-backed startups in the US, according to Bloomberg, and on Friday became the biggest US bank to fail in more than a decade sparking fears of contagion.
US REGULATORS LEAP INTO ACTION
On Friday, California state regulators took possession of SVB, which had assets of roughly $210 billion and deposits of $175 billion at the end of last year.
Meanwhile, over the weekend the US Department of the Treasury, the board of governors of the Federal Reserve System and the Federal Deposit Insurance Corporation issued a joint statement stating that actions had been approved enabling the FDIC to ‘complete its resolution’ of Silicon Valley Bank to fully protect all depositors.
Moreover, the Federal Reserve extended the amount of time US banks can use its ‘discount window’ to borrow money to manage their withdrawals from one week to one year.
Unfortunately, while depositors will have access to the money from today and won’t lose any of their deposits, shareholders in SVB and some bondholders have seen their entire investment wiped out.
BARGAIN-BASEMENT BAIL-OUT
This morning global banking giant HSBC (HSBA) revealed its UK subsidiary had stepped up as a ‘white knight’ and paid £1 to take over the UK arm of SVB.
As of last Friday, SVB UK had loans of around £5.5 billion and deposits of around £6.7 billion.
‘This acquisition makes excellent strategic sense for our business in the UK’, said HSBC chief executive Noel Quinn.
‘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.’
Several UK companies which have banking relationships or credit facilities with SVB, either in the UK or the US, issued statements this morning clarifying they had no liquidity issues and were not facing any operational difficulties.
These included Eagle Eye Solutions (EYE:AIM), GetBusy (GETB:AIM), Medica (MGP:AIM), MusicMagpie (MMAG:AIM), Naked Wine (WINE:AIM) and Trustpilot Group (TRST).
CONTAGION WORRIES NOT OVER YET
While the regulators have moved swiftly to solve the SVB meltdown, fears remain over the broader risks around the impact of higher interest rates on banks which, like SVB, have large holdings in low-interest bonds which they can’t sell in a hurry to meet customer withdrawals without incurring big losses.
Shares in First Republic Bank (FRC:NYSE) fell 15% on Friday and are indicated down another 50% today in pre-market trading, while Western Alliance Bancorp (WAL:NYSE) shares fell 20% on Friday and are down another 20% pre-market today.
The FTSE 350 banking index is down 4% today, and over the last week has lost over 8.5% of its value.
Shares in HSBC were down 3.4% to 572p by mid-morning on news of the acquisition while shares in Barclays (BARC) were 4.6% lower at 150p and shares in Standard Chartered (STAN) were 5% lower at 703p.
