HSBC to Buy UK Arm of Silicon Valley Bank
bbc.co.uk
bbc.co.uk
> As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m.
Maybe the other bidders were not offering that much...
So one company may bid saying they want to acquire X parts of the company but can not take on the advertising arm or the quality assurance part of the company; which means jobs losses etc. Another company may say we'll acquire all of the company but not the freehold properties the business owns.
The liquidation team then have to decide which bid offers the best likely outcome for the creditors/business. The £1 isn't technically what they're paying for the company, as they're taking on debt, leaseholds, pension funds etc. Their bid is technically tens or hundreds of millions depending on the situation.
Thus the bids are for the lowest subsidy instead of the highest price.
HSBC: [sigh], ok fine why not
The token is just to make the sale contract binding
I keep reading this but this should not be true
Any bank will hit liquidity issues on a full-on bank run, as not 100% of a banks assets will be marketable, but central banks will provide emergency liquidity in these situations
But banks should not hit insolvency issues like SVB did
the PV of a bond is the risk adjusted, discounted (at current rates) FV of the bond (and interim coupons). The losses are real, they don't magically come back, they just magically appear to realign like your ETA does as you get close to your destination after losing hours in a traffic jam.
You don't buy bonds (or mortgage backed securities), you buy the future cashflows they represent. Let's say you have a billion dollars, and you buy future cashflows worth a billion at a 2% interest rate, then interest rates jump to 6%: you still own the same future cashflows, but those cashflows are not worth a billion any more, they're only worth a third of that (give or take). now you don't have the flexibility to sell those cashflows to finance a billion in other investment activities. Now your stock is not worth what it was, so if you sell stock you get less to finance investment opportunities. Will your bank be OK if you hold what you hold to maturity? you will get the cashflows, which if you have perfectly balanced cash flows-in with cash flows-out means you break even, but (a) you didn't do that and (b) that's not the business you are in, to sit in stasis for 20 years: you are much less valuable, your opportunities have dried up, and current customers do not want to do business with you any more. Sharks have to keep swimming or they suffocate (which may not be true for sharks, but it is true for banks) A bank is not a treasure chest waiting to be dug up, it's a McDonalds that needs people to order fries with that.
Roku put something like $500 million into the bank, that money gets invested by the bank overnight into very safe govt paper, but during the day it is turned back into cash assets of the bank, and it disappeared going into Roku's account and without being turned into govt paper again. It is not the case that Roku will get its $500 million back by sitting on that paper, there is no paper and the cash is gone.
I don't think it should be up to the government to back these risks, because if banks think the government will always rescue them, they don't need to care as much about risky investments.
You could argue that it is depositor money, so they're not really saving the bank, they're saving customers. But if banks don't have to care about their risk profile, customers will deposit their money in whatever bank is offering the greatest interest rates, which will likely be those that are making the riskiest investments, which could lead to more bank failures with market swings.
So the resulting system is a patchwork of solutions that force the government into the role of rescuer. It's just too difficult to get most regulations to stick long enough to prevent another banking crisis. Barring a Constitutional amendment to create a banking "tsar" with broad authority and who reports to no-one (i.e., non-political), the best solution we have is to have the government step in when banks inevitably fail.
Counterpoint - if depositors had known that the bank could not lose their money, because the government will back it, there would be no run on the bank. Why bother? It's _safe_ by design. I do agree with the general point, and there are huge questions around capitalisation and marking with long term debt etc.
What's most interesting here to me is the inaction within SVB when they could have been fixing these problems for survivable losses early, but instead tried to ride the storm.
I'd love to read some of those meeting minutes...
That was not the case in the US for banks with HTM assets until the backstop program announced by the Fed in the wake of the SVB collapse.
> But banks should not hit insolvency issues like SVB did
SVB’s liquidity issues turned into solvency issues because of the absence of a liquidity backstop.
And the measure put in place by the Fed is not a liquidity back stop, it is a value/solvency bailout, or kind of capital infusion. This is what SVB was trying to do on Wednesday, raise capital. That should tell you it is not a liquidity problem.
One of the actions was a program to loan against the full value of long term assets at term price instead of current market value.
Maybe we are just quibbling over the definition of liquidity. long term treasuries and MBS can be easily sold, but you may take a substantial loss in doing so instead of holding to maturity.
Just because you can't sell a bond at par doesn't mean it is an illiquid market.
There is a much lower chance HSBC experiences a bank run. Not to jinx it but the most likely outcome is that most customers are satisfied that HSBC is a well-capitalized bank and keep their money there, while HSBC gets to use their deposits and the bank's assets to sit comfy earning yield.
Another is that SVB UK could be solvent so long as they don’t have to sell assets at a loss. Being part of hsbc stops the assets needing to be sold at a loss. And a separate thing is that even if the assets net liabilities are negative, the customer relationships could be valuable enough to hsbc to counteract that. Hsbc get a load of growing companies whom they can try sell banking services to. That assumes customers don’t all flee, but I don’t think they would because there isn’t a particular reason to fear hsbc in the way there was for SVB.
I don’t know what the commenter meant about JPM printing money.
Borrowing in the maket at 5% so you can keep the bonds paying 1% for the next 10 years might not seem like a "loss" but it is a loss.
I actually wonder if that’s why the uk arm of svb was able to be purchased but the US one wasn’t. It’s probably just the relative size differences but I’m curious if the fdic got no bids for svb or didn’t get any it liked.
https://www.bloomberg.com/news/articles/2023-03-12/fdic-auct...
My dad also was the lead in his bank purchasing other banks in the 90s, and that was a months long, tiring and stressful process that they knew how to manage, and he said that receiving a bank from the FDIC was a different level of acute stress.
Edit Just unlocked a memory, I think one of the reasons that my dad's bank got selected was also that they ran the same backend banking software, since it was going to be a crash acquisition.
It can not be overstated just how important this would have been. These backed systems are complex, expensive and horrible. Implementing a (mondern) new backend at a bank is a multi year multi $10million process.
In the sea of information about this, other than 'all is good', I didn't know UK branch was being taken over and sold as well.
Nobody can buy a profitable, stable, multi-billion company for 1 GBP, without a good cause.
Yes, SVB UK is legally fenced, but in terms of management and daily practices, why wouldn't they have the same issues as their parent ?
> It also logged a pretax profit of £88 million ($106.5 million) in its last fiscal year ended December.
The company has gone insolvent because it's no longer profitable.
Their Liabilities and assets outmatch their 'profit' by 100x.
They could be making a handy profit yesterday and be bancrupt today because the market has moved. Normal companies can't go bancrupt in one day
"Normal companies can't go bankrupt in one day" - They didn't go bankrupt. They went into liquidation. Massively different thing. You can have a company with billions of quid saved up in the bank that goes into liquidation.
Liquidation is quite common and happens daily in the UK to 'normal' companies. Companies that were profitable last week and no longer can operate as they're not profitable enough to pay their debts/what they owe.
I think your issue here is you don't understand what liquidation is/means and basic principles of business profits. The most important part is that while a company may be profitable at the 'end of year' -- They have to first get to the end of the year.
What you seem to be talking about about is cashflow insolvency. You can have a wildly profitable contract that pays in 120 days, but have no cash on hand to pay debtors. The work you are doing is profitable, you just can't afford to pay your debtors right now.
Profit != cashflow, that's why it's called cashflow insolvency instead of profit insolvency. You seem to be mixing up profit and cashflow.
But you're also talking about the wrong thing. These banks are not in cashflow insolvency. As far as I can see, these banks are going through what is called balance sheet insolvency. Their assets are worth less than their liabilities.
However, the assets are weird as the $100 bond they have is presently worth $78 even though in 10 years time it will be worth $100 again.This is because the interest the bonds pay is so low, no-one wants to buy it right now.
So their balance sheet doesn't add up, and as people started taking money out, they couldn't cover their liabilities. It LOOKED like their balance sheet was fine as they were valuing them at $100, but then they were forced to sell them and suddenly they have a big hole in their balance sheet.
So they're insolvent not because they've got a cashflow problem, but because their balance sheet doesn't balance. And the regulators stepped in to stop some creditors getting all their money out before that bank essentially went bust, leaving other creditors with nothing.
And now the regulators seem to be saying "we're going to guarantee that $100 bond is worth $100 even if you can only sell it for $78". By loaning people money up to $100 against it if they have one.
And they are claiming it won't cost the tax payer anything. But they're making 0% loans to banks when high inflation is happening, so the money they get back is going to be worth less than if they spent it on roads or healthcare, or whatever.
Maybe I'm wrong, and happy to be corrected, but it does seem what you're saying is wrong.
I can think of a few methods to turn a profit with a zero-interest loan. There is definately opportunity cost.
It's a bit like if you want to buy a house that has a mortgage and the deal is that to buy the house you have to take the mortgage on as well. How much cash would you be willing to pay for that? Potentially 0 (i.e. taking the mortgage on is enough for you).
What.
Well, honestly, well done everybody. This was resolved over a weekend. And shows that it can be resolved.
https://home.treasury.gov/news/press-releases/jy1337
> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer... Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
While they say "no losses will be borne by the taxpayer", making banks pay who will then pass along those costs to their customers seems like a roundabout way of taxpayers paying - or at least a substantial portion of taxpayers who are banking customers. Maybe banks won't be able to pass along the costs through increased fees or lower rates and will have to eat the costs.
By that logic the cup of coffee I bought earlier was paid for by the taxpayer because I a taxpayer paid for it.
Do you mind sharing why do you think HSBC is a good business bank and what are the typical qualities a business needs to have to be great for founders?
This isn't 4d giga brain chess stuff, its adults walking into the room. A meaningless tiny bank with assets and liabilities broadly matched has gone under - the regulator has stepped in, phoned around the market and somebody had to take it. £1 is the best they could do - and I expect that it is going to, directly at least, be a loss of money for HSBC all the same.
And yeah, 80 million pounds of profit last year. I'd buy that for a dollar
From here HSBC will spend ~10mil on just the purchase legals. Then they will spend 100s mil when inevitably the equity / bond holders of SVB parent co sue them looking to adjust up the price, and their opening ask will be £1bn+.
All 3,000 business accounts (if there were that many) were up for grabs anyway so they could have had many using a photocopier and handing out flyers at silicon roundabout without any of the hassle.
HSBC looked at their own existing liabilities - looked at how many customers of theirs were paid from SVB (and paid their HSBC mortgages with the proceeds) and did the BoE a favour, and there will be a quid pro quo for that quid they paid at some point.
In business, last years profits are often irrelevant. This is a good example. It's a constant treadmill of trying to stay profitable - which isn't as easy as it sounds.
More so when businesses of this size are usually built on owing large sums of money.
They’ve paid £1 (symbolic purchase price) but it’ll cost them a lot more.
They are getting customers (the deposits owed to those customers is debt), but they will also be getting illiquid assets that should more or less cover the value of those deposits.
They will need to use their own liquid cash in the short term to cover any withdrawals. But in the long term they get to keep some of the customers and they should eventually profit when those illiquid assets mature.
This is pretty much the old Berkshire playbook, buy distressed assets at giant discounts.
But yeah, they surely should have been able to find someone willing to pay 100-10000% more than that.
So if sold for 1 GBP, it's literally a steal.
HSBC has a huge Sterling reserve buffer that can easily accommodate that exodus. (Essentially HSBC UK becomes the depositor of last resort in SVB UK).
Remember that the issue with SVB was that it was taking duration risk when it hadn't the deposits to match that duration. The HSBC parent company can easily provide that duration.
Cashflow issues kill profitable operations. They kill banks in double quick time.
Banks, at the end of the day, are just that: brands built on the belief that they will survive long enough to not lose your money. Once that belief goes, once the brand is over, a bank run is automatic and the bank dies.
The US also did it over the weekend. Kinda had to be done.
edit: "Chancellor Rishi Sunak 'did shifts for fun' in Southampton Indian restaurant"
https://www.dailyecho.co.uk/news/18237824.chancellor-rishi-s...
> A sale of SVB UK, which has 3,300 UK clients, including start-ups, venture-backed companies and funds, was the preferred choice of chancellor Jeremy Hunt, avoiding a big government intervention to protect depositors.
source: https://www.ft.com/content/216b193d-62b3-4e5e-8f67-e8eb3d96e...
1. Valid concern from the opposition
2. Rishi ignores the concern
3. Rishi says something about "the member from Islington North"
4. Jeering from the back benches (both sides)
5. Opposition moves on to another topic
1. Government back-bencher asks "Does the PM agree that we are doing a fantastic job on X?"
2. Rishi agrees
3. Rishi uses the time to grandstand about some other unrelated accomplishment
Still, I see no evidence that he is using his position of power to improve on this.
But this has been like that forever, not very specific to any party or any PM.
the real work happens in the boring debates and committees which aren't all over the press
https://www.indiatimes.com/worth/news/hindenburg-trolled-for...
Somehow, though, I could actually see that being a thing.
Funnily that's where their name comes from - Hongkong and Shanghai Banking Corporation Limited, HSBC for short (it's now the official name, HSBC does no longer stand for anything, probably to lessen the obvious imperialistic past in it's name).