Friend Or Foe? What HSBC’s SVB UK Rescue Package Means For Fintech

March 16, 2023
As the dust settles, concerns are growing that HSBC’s rescue deal for Silicon Valley Bank (SVB) may not bode well if the bank uses its traditional risk approach.

As the dust settles, concerns are growing that HSBC’s rescue deal for Silicon Valley Bank (SVB) may not bode well if the bank uses its traditional risk approach.

Markets, governments and regulators were inevitably spooked by the fast moving situation engulfing SVB and acted swiftly to try and stem the problem.

In the UK, HSBC agreed a sale with regulators over the weekend, meaning that services were up and running again by the start of the week.

“I think it’s great that HSBC have stepped in to prevent any further market disruption,” said Chris Jones at PSE Consulting. “Thank goodness that the UK government was able to intervene so quickly. HSBC is a good low risk bank with a very large portfolio within which SVB can sit.”

However, the HSBC sale has not entirely quelled concerns about the impact on the UK fintech sector going forward.

"SVB did two key things. It provided everyday corporate banking, but importantly, it also did a lot of lending to fintechs,” said David Parker at Polymath Consulting.

“If HSBC now apply their standard risk appetite, could this lead to more instances of de-risking. Where does the fintech market go if this happens?"

This was also a concern for Jones.

“Their low risk approach to investments may lead the bank to offboard some of the fintech players,” he said. “There is a reason why all these entities went to SVB and were not serviced by HSBC in the first place. However, we will just have to wait and see.”

According to Gary Prince, founder of Astus Munia Consilium, HSBC is “not a fintech's friend as a bank”.

“They are very risk averse and it is very difficult getting business from them,” he warned.

The consultant continued that the bank has been particularly wary of e-money firms in the past.

“If you're e-money, forget it. Even when I was at O2, and we had an e-money business, they wouldn't do it. It will be interesting to see what happens as their governance strategy focuses on traditional businesses and whether they keep the SVB unit as a standalone,” he said.

"Will fintechs be able to open a new account or is this a closed book and has their sign up criteria changed or is it like it was before?” Prince asked. “If they keep things under the HSBC risk profiling, it will be very difficult."

So far, the feeling is that regulatory action happened quickly enough to stem the issue and at least reduce the risk on Europe’s markets.

“Given the unique nature of its business, the SVB bankruptcy does not pose a financial stability risk for the European financial sector,” said David Tercero-Lucas at Lipis Advisors.

“We could see some spillover effects in the stock market because of the instability caused by its collapse but that should be everything.”

However, the Berlin-based consultant did acknowledge that many fintechs had accounts at SVB.

“This makes the sector more exposed to the collapse of the bank,” he said. “In a context of rising interest rates where getting a loan is becoming more and more expensive, this will make it even harder to obtain funding.”

What plays well into the hands of fintechs is that HSBC has agreed to invest £2bn into SVB UK and has suggested that no changes are likely to be made in how SVB is run following the acquisition.

Meanwhile, HM Treasury has agreed to waive restrictions on the types of customer that HSBC can take on.

“In order to ensure the sale could proceed, the government is using its powers under the Banking Act to provide HSBC with an exemption to certain ring fencing requirements,” confirmed Andrew Griffith, the UK’s City minister, in a letter to the Treasury Select Committee.

VIXIO has approached HSBC for comment, but it had not responded at the time of writing.

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