SVB’s collapse: Shanghai weighs a buyout of SVB in local venture while HSBC steps up as white knight for collapsed bank’s UK unit

HSBC has swooped in to buy the collapsed bank’s UK subsidiary for a nominal £1
the US bank’s subsidiary in China may be taken over by its Chinese partner Shanghai Pudong Development Bank (SPDB), according to sources familiar with the matter

Silicon Valley Bank (SVB) collapse

Daniel Renin Shanghai,Enoch Yiuin Hong KongandChad Brayin London

Published: 6:30pm, 13 Mar 2023

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The Silicon Valley Bank’s (SVB) global operations are being taken apart after the California-based lender was taken over by regulators on Friday, becoming the second biggest bank failure in the history of the United States.

HSBC has swooped in to buy the collapsed bank’s UK subsidiary for a nominal £1, while the US bank’s subsidiary in China may be taken over by its Chinese partner Shanghai Pudong Development Bank (SPDB), according to sources familiar with the matter.

Shanghai’s banking authorities are now discussing plans to deal with SVB’s venture (SPD-SVB) in the city as they try to play down the psychological impact brought by a run on the lender’s deposits in the United States. SPD-SVB has invested in five companies since 2014, most recently in InxMed’s US$10 million funding in July 2022, according to Crunchbase’s data.

SPDB is likely to buy out the 50 per cent stake held by its American partner, the sources said, adding that it is the “top choice” in a range of options. The Shanghai government and the banking regulator’s branch in the city held emergency meetings over the weekend after the Federal Deposit Insurance Corporation (FDIC) took over SDB, the officials said, asking not to be identified.

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Another option would be to allow another foreign investor to buy out SVB, the sources said, adding that the authorities will find a solution soon for the venture. Shanghai’s municipal government did not respond to queries posted by the Post.

The Bank of England wasted little time, as government officials raced to find a buyer for the SVB’s UK subsidiary, fearing a potential crisis among British technology firms if they were unable to access capital and pay their staff following the bank’s closure.

“All depositors’ money with SVB UK is safe and secure as a result of this transaction”, the Bank of England said in a statement. “SVB UK’s business will continue to be operated normally by SVB UK. All services will continue to operate as normal and customers should not notice any changes”.

“I said that we would look after our tech sector, and we have worked urgently to deliver on that promise and find a solution that will provide SVB UK’s customers with confidence”, said Jeremy Hunt, the UK Chancellor of the Exchequer in a statement. “Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support”.

SVB UK, which entered the UK in 2004 to serve tech clients and start-ups, had loans of around £5.5 billion (US$6.64 billion) and deposits of around £6.7 billion as of Friday. It earned £88 million in pre-tax profit last year.

SVB UK’s tangible equity is estimated at around £1.4 billion, HSBC said. The deal, which has already been completed, excluded assets and liabilities of SVB, leaving HSBC to finance the acquired entity from existing resources.

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“This acquisition makes excellent strategic sense for our business in the UK,” HSBC’s chief executive Noel Quinn said in a stock exchange announcement. “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.”

A foreign buyout of SVB’s Shanghai venture may add complications, as a new overseas shareholder will require another round of scrutiny by the banking regulator. But time is of the essence, as customers need reassurance that their credit lines and funds are secure, especially at a time when funding for start-ups is scarce, analysts said.

“Chinese regulators will act swiftly to allay concerns about risks arising from SVB’s failure in the US,” said Ding Haifeng, a consultant at Shanghai-based financial advisory firm Integrity. “SVB will have to exit the venture, now that it is seen as a failed US bank”.

A statement by SPD Silicon Valley Bank, a venture between Shanghai Pudong Development Bank (SPD) and the Silicon Valley Bank (SVB), on March 11, 2023. Photo: Weibo.

SVB invested US$75 million for half of its SPD-SVB venture, raising its stake to 1 billion yuan (US$145 million) along with a commensurate increase by SPD in September 2021.

SPD-SVB had 21.3 billion yuan in total assets in China at the end of June last year. It reported a net loss of 5.5 million yuan, on 195 million yuan in revenue in the first six months of 2022.

Operations are “stable”, in line with China’s banking regulations that required it to maintain an independent balance sheet separate from its troubled California parent, the bank said on Saturday.