DBRS Commentary on the SVB UK Rescue By HSBC

Some thoughts from DBRS Morningstar on the HSBC/UK govt rescue of SVB’s Uk client list. Is this a good move given the alternatives? Probably.

Today HSBC UK bank plc (HSBC UK), the UK ring-fenced subsidiary of Holdings plc (HSBC or the Group), announced that it has acquired Silicon Valley Bank UK Limited (SVB UK), the UK subsidiary of US Silicon Valley Bank for GBP 1.

This follows the failure of SVB Financial Group (SVB; unrated by DBRS Morningstar) on Friday, the first bank failure in the U.S. since 2020 and the largest failure since the 2008–09 financial crisis (see SVB’s Failure Sparks Sharp Sell-Off in the Sector as Banks Face Increased Scrutiny of Unrealized Balance Sheet Losses, https://www.dbrsmorningstar.com/research/410782 dated March 13, 2023).

We consider the acquisition to have no impact on HSBC Holdings’ Long-Term Issuer rating (AA (low), Stable trend), given its very small size compared to the size of HSBC UK and the scale of the Group. SVB had total loans of GBP 5.5 billion and GBP 6.7 billion of deposits on 10th March 2023. SVB”s loans and deposits represent a small 2.7% and 2.4% of HSBC UK’s respectively, and an even lower proportion of the Group’s total loans and deposits of around 0.7% and 0.5% respectively. SVB reported a profit before taxes of GBP 88 million in 2022 compared to GBP 3.6 billion for HSBC UK and GBP 19.9 billion for the Group.

The acquisition announcement follows the decision taken by the Bank of England (BOE), in consultation with the Prudential Regulation Authority (PRA), HM Treasury (HMT) and the Financial Conduct Authority (FCA), to apply its resolution powers to SVB. The BOE as the UK resolution authority, has chosen the resolution option of sale of business for SVB.

We consider this was a swift action to preserve financial stability without using taxpayers’ money, and minimising contagion impact to the UK technology sector. In addition, we note that SVB UK is the first bank resolution that has taken place in the UK since 2011. The resolution of SVB was carried out to safeguard the depositors, including uninsured deposits and ensuring that SVB’s clients continue to have access to banking services, which has been achieved through the sale to HSBC. SVB’s clients are from today part of HSBC and can continue to operate normally without disruption.