Svb UK for £1

Submitted by Responsible_Tie_8124 t3_125v9zl in wallstreetbets

Hi Reddit,

I was reading about the acquisition of SVB UK by HSBC and was surprised to find they bought it for £1...

I understand HSBC wouldn't pay a lot for a company that comes under them because the money they pay for it will just be transferred within the corporate, but SVB UK has (or at least estimated to have) £1.4b assets, how come HSBC could buy them for £1?

I see other people's posts and comments that even £1 is too much, but I can't figure out why, could someone please explain it to me?

Thanks in advance

5

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Brilliant-Ad-5414 t1_je627gu wrote

You say they have $1.4B in assets, but how many liabilities do they have?

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Responsible_Tie_8124 OP t1_je63qeq wrote

Thanks for your reply. I didn't think about that so I checked - "As noted, the £322 million perpetual subordinated notes (Additional Tier 1 instruments) and the £33 million subordinated debt notes due 2032 (Tier 2 instruments), each issued by SVBUK, are reduced to zero; liabilities under those instruments (including accrued interest) are cancelled." So I assume HSBC doesn't have to pay or have responsibilities for any svb's previous liabilities.

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wsbgodly123 t1_jeapygo wrote

So HongKong bank got 1.4 billion free money? Sounds about right.

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VisualMod t1_je61xv6 wrote

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VisualMod t1_je61yky wrote

>The simple answer is that HSBC could buy SVB UK for £1 because they are a much larger and more powerful company. When two companies merge, the smaller company is almost always absorbed into the larger one. In this case, it made sense for HSBC to just pay a nominal fee to acquire SVB UK since they were already quite familiar with the business and knew that they could easily integrate it into their own operations.

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Responsible_Tie_8124 OP t1_je62hx0 wrote

Thanks for ur answer. In a relating case, UBS paid over $3b for credit Suisse - was this because they weren't much different in their sizes?

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_aposematism_ t1_je9alo6 wrote

They didn’t have £1.4B of assets, they had £1.4B of equity (which is even better, because it’s already assets minus liabilities) but the catch is that the number refers to before the bank run.

It’s difficult to know how much equity was left after the bank run. Definitely less than £1.4B, but definitely more than £1. HSBC was able to buy it for £1 because SVB’s reputation was damaged beyond repair, so eventually their equity would have gone to zero without a bailout, hence £1 was a kind of decent bid considering the likely value of equity in the future.

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Quirky_Mention_3191 t1_jed5r54 wrote

£1 is more for technical reasons, else it wouldn’t count as transaction. They were forced to take over SVBUK by govt.

1