The token £1 is just a payment requirement for ownership. The bidding process for insolvent companies is essentially who will take on the most "problems" for the best outcomes for the business.

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.

Usually the "buyer" is being paid to take it off the regulator's hands, so the actual price is negative. The token (positive) amount is to make it easier to deal with in a legal sense.

Thus the bids are for the lowest subsidy instead of the highest price.

£1, plus all deposits, plus all other liabilities (from what I understand).

Maybe the other bidders were not offering that much...

I imagine it was "which one of you wants this steaming mess?".

HSBC: [sigh], ok fine why not

The token is just to make the sale contract binding

Maybe other bidders weren't willing or able to guarantee all deposits?

Possibly the other bidders were seen as less robust and able to absorb the liabilities of SVB UK?

Worth mentioning that HSBC recently announced an absolutely banging quarter and are in a great position to take advantage of this situation.

This is pretty much the old Berkshire playbook, buy distressed assets at giant discounts.

Well, it might be more accurate to say they are taking on risk.

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.

> Being part of hsbc stops the assets needing to be sold at a loss

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.

The full name is still printed on most of our banknotes (alongside Bank of China and Standard Chartered who issue a smaller number of notes). I think it's just the parent company who deleted the original meaning.

IIRC, it stopped standing for anything when they moved the HQ to London in the 90s (following the takeover of Midland Bank), and it became HSBC Holdings plc.

They bought £5bn of assets and liabilities and bunch of admin work integrating it all. I highly doubt anyone is bothering to break out the champagne for this one - it is a rounding error at best.

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.

Oligarch level play. Firesell of distressed assets, get all the real value of revenue forever after.

Buying for £1 is a common thing in the UK for companies in distress. In reality it’s worthless so should be £0 due to the mountain of worth and risk they need to wade through to realise the value, but UK contract law requires some kind of consideration (I think that’s the right term, my contract law for engineers module was a while ago now) for both sides otherwise it’s not a valid contract.

So between £100 and £10000?

I've also been an HSBC US customer for like 6-7 years, and quite happy with them. They decided to keep me too haha.

I want to build a business someday, and have always been interested on what to watch for when looking for a business bank as a founder.

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?

He has a finance background

If HSBC bought it for £1 (which is a minimal amount in order to have a binding contract) it does not mean that the deal is too good to be true. It means that the company actually has a negative net value, i.e. more liabilities than assets, and of course HSBC will take those liabilities on.

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).

It's not a multi-billion company, it a bank that has billions of loans and deposits (assets and liabilities). Yes, its a profitable bank but on order of magitude lower scale:

> It also logged a pretax profit of £88 million ($106.5 million) in its last fiscal year ended December.

My father, controller at a mid-sized regional bank, was involved in a couple of these when I was growing up, and worked at the FDIC as an examiner in the 80s. My memory from the last takeover he did shortly after this NPR article was that the FDIC had given him the vaguest of hints that his bank was on a list that could be selected to takeover a bank in the next month or so, then called him on a Wednesday afternoon, told him he needed to be half a state over by Friday morning (which I also gathered was a little out of norm but the FDIC person was someone my Dad had dealt with for a while and there was mutual trust) for a meeting, and then they took over the bank on Friday. There was the impression from my dad that they could have tried to refuse, but his bank wanted to expand in that area anyway, the FDIC knew that, and decided it would be best to have a larger, not-in-the-market-but-near-it bank take over this smaller community bank.

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.

That’s not what they did with svb.

https://www.bloomberg.com/news/articles/2023-03-12/fdic-auct...

Assuming of course clients don't fucking pull out the moment they can when svb uk reopens.

They didn't acquire client assets for £1. That's not quite how it works.

Fair point, so I will flesh this out a bit. The typical pattern we see in PMQs every week is this:

  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

Or perhaps this:

  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

Perhaps this is more a criticism of the system than Rishi?

Still, I see no evidence that he is using his position of power to improve on this.

I've seen him a few times on PMQs and I thought this comment was a reasonable description

You may be right, but the news coverage I've seen implies that the full backstop of all deposits regardless of size was announced because there is no buyer for SVB. Basically, there just wasn't enough time for buyers to feel comfortable with pulling the trigger.

The announcement from Treasury, the Fed, and the FDIC was that depositors would be made whole and that there would be an assessment on banks to cover it. As such, I'd assume that there was no buyer.

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.

As far as I understand SVB UK did not have a duration risk like the parent co.

Yeah, he tripped and threw the curry he was trying to serve over my wife's shoes. It's all she talks about whenever she sees him on TV.

The line is a little blurry. You can be underwater in mark-to-market terms on a bond portfolio, but be fine if you guess the timeline for redemption and can hold them to maturity. Banks estimate what percentage of their assets will be held to maturity. So needing extra liquidity causes insolvency.

I think what made it worse here is that depositors of SVB were undiversified... If you had a bank that held deposits from various kinds of people, it's less likely that all of them would want their money out at the same time unless there was some of kind of widespread change in sentiment towards the overall financial system.

> 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

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.

There's a certain amount of risk with all lending and investment that banks do with deposit funds. This can be home loans, government bonds, and other relatively safe products.

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.

the rules of accounting say losses are only recognized when realized (mostly because they don't want you playing the game in the other direction and exaggerating your worth), but the cashflows and market prices tell the true story, a different story than book value.

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.

Not confusing the two, and maybe it is quibbling but changes in market value have nothing to do with liquidity as that term is used in finance.

Just because you can't sell a bond at par doesn't mean it is an illiquid market.

I'm not sure you understand what's happening here or the basics of business and liquidation.

"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.

According to the news reports the Fed are guaranteeing the loans, not the FDIC. I think you're talking about the stuff that they were originally saying over the weekend.