13th Mar 2023 12:05
(Alliance News) - Shares were lower at midday in London on Monday, as bank shares suffered from the collapse of Silicon Valley Bank.
HSBC Holdings stepped in on Monday morning, saying that it will buy the US lender's UK arm for the nominal price tag of GBP1.
"Despite the best efforts of governments and regulators, the market was still very edgy on Monday as investors considered the fallout from SVB's collapse," said AJ Bell investment director Russ Mould.
"There's plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix. Little surprise people are feeling a bit spooked."
The FTSE 100 index was down 142.82 points, 1.8%, at 7,606.20. The FTSE 250 was down 398.05 points, 2.1%, at 18,959.46, and the AIM All-Share was down 11.64 points, 1.4%, at 825.80.
The Cboe UK 100 was down 1.8% at 760.78, the Cboe UK 250 down 2.4% at 16,575.92, and the Cboe Small Companies down 1.0% at 13,665.25.
Asia-focused lender HSBC said its ring-fenced UK subsidiary, HSBC UK Bank has acquired Silicon Valley Bank UK. "The transaction completes immediately," HSBC said.
HSBC shares shed 3.8% following the news.
Mould said: "The frenzied announcements from UK small caps which emerged first thing this morning look like they can be put on hold for now as HSBC emerges as a white knight to buy up the UK arm of tech and start-up lender SVB for GBP1 and take on all its deposits and liabilities."
On Friday, SVB UK's Californian parent company collapsed, with US regulators seizing its assets. The Bank of England then ordered its UK arm into insolvency on Sunday night.
A number of buyers were said to be considering the acquisition of SVB UK, with Sky News reporting that JPMorgan Chase also was exploring the possibility.
According to HSBC, as of Friday, SVB UK had loans of around GBP5.5 billion, with deposits of around GBP6.7 billion. In 2022, it brought in pretax profit of GBP88 million. Its tangible equity is expected to be around GBP1.4 billion.
"Final calculation of the gain arising from the acquisition will be provided in due course," HSBC said.
"This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally," said HSBC Chief Executive Officer Noel Quinn.
"SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC."
On Monday, UK Chancellor Jeremy Hunt said on Twitter that the UK government and the Bank of England had "facilitated a private sale" of SVB UK to HSBC. "Deposits will be protected, with no taxpayer support," Hunt confirmed.
On Sunday, US authorities unveiled sweeping measures to rescue depositors' money in full from SVB and to promise other institutions help in meeting customers' needs, as they announced a second tech-friendly bank, Signature Bank, had been closed by regulators.
With the two bank failures rattling nerves, President Joe Biden vowed to hold "fully accountable" the people responsible for "this mess" and said he would deliver remarks on Monday morning on maintaining a resilient banking system.
In the FTSE 100, Standard Chartered was one of the worst performers at midday, shedding 5.2%.
The London-based, Asia-focused bank said its shares have been included in the south bound Stock Connect programme, which allows investors in mainland China to invest in the Hong Kong market.
It explained that the inclusion of its Hong Kong shares in the Shanghai and Shenzhen Stock Connect schemes follows their addition to both the Hang Seng Composite Index and the Hang Seng Large-Mid Cap Index.
Other FTSE 100 bank stocks also were lower at midday, in reaction to the SVB demise. NatWest was down 3.7%, Lloyds 3.6%, and Barclays 3.5%.
In the FTSE 250, Direct Line Insurance lost 5.5%.
The Bromley, England-based motor and home insurer reported a pretax loss in 2022 of GBP45.1 million, swinging from a pretax profit of GBP446.0 million in 2021.
Gross earned premiums fell by 1.1% to GBP3.13 billion from GBP3.17 billion a year ago.
The company said its combined operating ratio was 106%, up from 90% in 2021. The company said combined operating ratio normalised for weather was 103%. A combined operating ratio above 100% means a loss on underwriting.
Hargreaves Lansdown equity analyst Aarin Chiekrie said: "Direct Line continues to struggle in the face of significant headwinds. Rising claim inflation, new regulatory changes and severe weather events all contributed to a material fall in the group's operating profits. All of these factors pushed the combined operating ratio, a measure of profitability, above the dreaded 100%."
Direct Line noted that 2022 saw the highest weather event costs since the company's listing, with GBP149 million in claims, well above the company's budget assumption of GBP73 million. The company said prolonged periods of sub-zero temperatures in Scotland and North West England accounted for GBP95 million of these claims.
No final dividend was declared by the company, resulting in a total dividend of 7.6 pence per share in 2022, down 67% from 22.7p per share a year ago.
In European equities on Monday, the CAC 40 index in Paris was down 1.9%, and the DAX 40 in Frankfurt was down 2.0%.
The pound was quoted at USD1.2058 at midday on Monday in London, up compared to USD1.2025 at the equities close on Friday. The euro stood at USD1.0659, up against USD1.0637. Against the yen, the dollar was trading at JPY133.64, down compared to JPY134.82.
Stocks in New York were called to open mixed. The Dow Jones Industrial Average was called down 0.3% and the S&P 500 index down 0.1%, whilst the Nasdaq Composite was called up 0.6%. On Friday, they closed down 1.1%, 1.5%, and 1.8%, respectively.
Brent oil was quoted at USD81.74 a barrel at midday in London on Monday, down from USD83.02 late Tuesday. Gold was quoted at USD1,833.12 an ounce, down against USD1,859.42.
Monday is a quiet day on the economic calendar. Around 1800 GMT, Bank of England Monetary Policy Committee Member Swati Dhingra is due to speak.
The US moved to summer time over the weekend, putting the East Coast four hours behind GMT, rather than five.
By Sophie Rose, Alliance News reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.