As HSBC Holdings plc announced that its UK ring-fenced subsidiary HSBC UK Bank plc will acquire Silicon Valley Bank UK Limited (SVB UK) for £1, US authorities launched emergency measures to shore up confidence in the US banking system after the failure of SVB threatened to cause a broader financial crisis.
US regulators also closed New York’s Signature Bank, a significant real estate and crypto lender. Signature had been one of the main banks to the cryptocurrency industry along with Silvergate, which announced an impending liquidation last week.
US private bank First Republic Bank said it secured additional financing through JPMorgan Chase & Co, following a collapse in its share price.
Here are statements made by some of the main players in the crisis as well as the thoughts of market analysts:
The UK central bank, the Bank of England, said: “The Bank of England (Bank), in consultation with the Prudential Regulation Authority (PRA), HM Treasury (HMT) and the Financial Conduct Authority (FCA), has taken the decision to sell Silicon Valley Bank UK Limited (‘SVBUK’), the UK subsidiary of the US bank, to HSBC UK Bank Plc (HSBC).
“HSBC is authorised and supervised by the PRA and the FCA. This action has been taken to stabilise SVBUK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system.
“The Bank and HMT can confirm that all depositors’ money with SVBUK is safe and secure as a result of this transaction. SVBUK’s business will continue to be operated normally by SVBUK. All services will continue to operate as normal and customers should not notice any changes.
“Customers can continue to contact SVBUK through the usual channels and borrowers should make any loan repayments to SVBUK as normal. SVBUK staff remain employed by SVBUK, and SVBUK continues to be a PRA/FCA authorised bank.
“Today’s announcement supersedes the Bank’s 10 March statement that, absent any meaningful further information, it intended to apply to the Court to place SVBUK into a Bank Insolvency Procedure. Given the emergence of a credible purchaser for SVBUK the Bank has determined that using its resolution powers for stabilising failing banks is appropriate.
“No other UK banks are directly materially affected by these actions, or by the resolution of SVBUK’s US parent bank. The wider UK banking system remains safe, sound, and well capitalised.”
Joint Statement by US Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg: “Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system.
“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
“Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
“Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
FDIC on Signature Bank: “Signature Bank, New York, NY, was closed today by the New York State Department of Financial Services, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect depositors, the FDIC transferred all the deposits and substantially all of the assets of Signature Bank to Signature Bridge Bank, N.A., a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders.
“Signature Bank had 40 branches across the country in New York, California, Connecticut, North Carolina, and Nevada. Banking activities will resume Monday, March 13, 2023, including on-line banking. Depositors and borrowers will automatically become customers of Signature Bridge Bank, N.A. and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards, and writing checks in the same manner as before. Signature Bank’s official checks will continue to clear. Loan customers should continue making loan payments as usual.
“The transfer of all the deposits was completed under the systemic risk exception approved earlier today. All depositors of the institution will be made whole. No losses will be borne by the taxpayers. Shareholders and certain unsecured debt holders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund (DIF) to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
“These actions will protect depositors and preserve the value of the assets and operations of Signature Bank, which may improve recoveries for creditors and the DIF.
“Signature Bank had total assets of $110.4 billion and total deposits of $82.6 billion as of December 31, 2022. As receiver, the FDIC will operate Signature Bridge Bank, N.A. to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by Signature Bank.
“A bridge bank is a chartered national bank that operates under a board appointed by the FDIC. It assumes the deposits and certain other liabilities and purchases certain assets of a failed bank. The bridge bank structure is designed to “bridge” the gap between the failure of a bank and the time when the FDIC can stabilize the institution and implement an orderly resolution.
“The FDIC named Greg D. Carmichael as CEO of Signature Bridge Bank, N.A. Mr. Carmichael recently served as president and CEO of Fifth Third Bancorp.”
Victoria Scholar, Head of Investment, Interactive Investor: “HSBC’s acquisition of SVB UK is a welcomed development for its depositors and the wider banking system. It means that SVB UK will avoid insolvency proceedings and its customers will be able to access deposits and banking services as normal from today.
“It will be interesting to see whether the start-up friendly style of lending offered by SVB and not the larger more traditional banking behemoths, will continue to be possible under the HSBC umbrella …
“The bank run was triggered after SVB crystallised a $1.8 billion loss on its $21 billion bond portfolio, spooking investors and customers.
“The tech sector lender took a view on interest rates last year and miscalculated the expected level of rate hikes from the Fed, landing the lender with heavy losses.
“On top of that, the rising cost of funding and volatile financial markets which caused a dearth in IPOs made life more difficult for many of SVB’s tech start-up customers, with some withdrawing deposits, putting pressure on SVB.”
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “White knights are coming to the rescue after a weekend of intense negotiations to stem contagion from the SVB collapse, which sent shockwaves through financial and tech sectors. Investors are waiting with bated breath to see if this rush of regulatory activity to try and limit the fallout from the SVB bank collapse will help soothe volatile markets and so far the bold action appears to be working.
“After a number of offers from smaller banks, HSBC has agreed to scoop up the beleaguered UK arm of SVB, which should end the nightmare thousands of tech firms had been experiencing over the past few days. HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition.
“This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.
“Concerted action has also been taken in the US and is helping to calm markets. Deposits at SVB and Signature will be guaranteed by the Federal Deposit Insurance Corporation, but crucially generous loan facilities will be provided to other institutions.
“Other banks also hold big chunk of US treasuries and other bonds which have plunged in value, which was partly why the sector was sideswiped on Friday, given that this sparked SVB’s collapse. To qualify for the new lending support these assets will be judged at their ‘at par price’, when they were issued, and not marked to market, so the recent volatility in bond markets should not affect their ability to access these new Fed funds.
“This is all aimed at malaise spreading to the wider financial sector and, although confidence is being restored, jitters will remain about longer-term repercussions. SVB was considered to be the lifeblood for the tech industry, offering facilities start-ups found hard to access elsewhere in the market, so although the immediate liquidity nightmare looks set to be lifted, worries will still linger about banking options ahead.
“With both Silvergate Capital and Signature Bank collapsing, it’s also leaving a gaping hole in financial provision for the crypto sector. There remains an unease about the damage wreaked as the era of cheap money has hurtled to an end. With niggling concerns that mild recessions could be on the way being replaced by a wall of worry about a looming tech crunch, investors will stay on tenterhooks about the direction of interest rates so this week’s CPI numbers in the US will be sharply in focus.
“The current turbulence may be unsettling, but long-term investing takes endurance and patience and rather than switching and ditching stocks, riding out the storm is almost always a good strategy when things look rocky. This is the time when the priority should be ensuring investors have a diversified portfolio with a wide range of holdings across different asset classes, sectors and geographies.’’
Walid Koudmani, chief market analyst at online investment platform XTB.com: “A combination of ‘risk appetite’ sentiments fueled by hope around a ‘helpful Fed’ and banking sector problems put downward pressure on the US dollar over the weekend.
“Following the bankruptcy of three US banks Silvergate, Signature, Silicon Valley Bank (now we know that, First Republic Bank also joined) the Federal Reserve, the Treasury Secretary and the National Economic Council reached an agreement with banking regulators to ensure that clients would be able to withdraw their funds.
“As mentioned, another US bank may be facing collapse – First Republic Bank. This bank is trading 60% lower in the US premarket session and has significantly impacted moods on the markets following the European cash session open with the German Dax down over 3.25% from daily highs.
“Furthermore, this situation has also significantly impacted expectations for the upcoming Fed decision with many now expecting a 25bp hike when it seemed almost certain for some that the US central bank would raise rates by 50 bp previously.
“In any case, markets remain very reactive and susceptible to further developments and could continue to be volatile throughout the week as a major domino effect could cause widespread risk-off moods leading to further losses for stocks and riskier assets.”