HSBC

Breaking: Silicon Valley Bank UK arm acquired by HSBC for 1 pound

Banking giant HSBC announced that it is acquiring Silicon Valley Bank UK for one pound ($1.21).

Global banking giant HSBC is coming to rescue the United Kingdom-based branch of the collapsed Silicon Valley Bank with a new acquisition.

HSBC officially announced on March 13 that its subsidiary, HSBC UK Bank, is acquiring Silicon Valley Bank UK (SVB UK) for 1 British pound ($1.21).

As of March 10, 2023, SVB UK had loans of around 5.5 billion pounds ($6.7 billion) and deposits of around 6.7 billion pounds ($8.1 billion), HSBC said in the announcement.

For the financial year ending Dec. 31, 2022, SVB UK recorded a profit before tax of 88 million pounds ($107 million). SVB UK’s tangible equity is expected to be around 1.4 billion pounds ($1.7 billion).

“Final calculation of the gain arising from the acquisition will be provided in due course,” HSBC wrote, adding that the assets and liabilities of the parent companies of SVB UK are excluded from the transaction. The company added that the acquisition would be funded from existing resources and would be completed immediately.

According to HSBC Group CEO Noel Quinn, the acquisition makes “excellent strategic sense” for HSBC’s business in the United Kingdom, strengthens its commercial banking franchise, and enhances its ability to serve innovative and fast-growing firms.

“We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world,” Quinn said, adding:

“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.”

The news comes after authorities in the United States ordered SVB to shut down operations on March 10, triggering panic in crypto markets because some major crypto companies like Circle and Coinbase had significant exposure to the bank.

Circle, the issuer of USD Coin (USDC) — the second largest stablecoin by market value — is unable to withdraw $3.3 billion of its $40 billion reserves due to SVB’s collapse. Coinbase had around $240 million in corporate funds at Signature — but is expecting to recover the amount fully. Paxos, the issuer of stablecoins like Pax Dollar (USDP) and the troubled Binance USD (BUSD) stablecoin, also had $250 million stuck at Signature but said that its private insurance would cover the amount.

UK banks HSBC, Nationwide to ban crypto purchases with credit cards: Report

The banks join a growing list of financial institutions in the country tightening restrictions on digital assets.

United Kingdom banks HSBC Holdings and Nationwide Building Society are banning cryptocurrency purchases via credit cards for retail customers. They join a growing list of banks in the country to tighten restrictions on digital assets.

A Bloomberg report on March 2 claims the step back is a response to warnings by U.K. regulators and scandals surrounding the crypto industry. Nationwide is reportedly applying daily limits of 5,000 British pounds ($5,965) on debit-card purchases of crypto assets, while credit cards will no longer be available for crypto transactions.

Customers of HSBC were barred from making crypto purchases with their credit cards last month. “This is because of the possible risk to customers,” HSBC wrote in an email seen by Bloomberg. In both cases, the banks pointed to warnings issued by the Financial Conduct Authority (FCA), about the risks related to crypto assets.

Other banks in the U.K. with restrictions on crypto services are Santander, Natwest Group and Lloyds Banking Group. Most of the restrictions target the crypto exchange Binance. HSBC banned credit card payments to Binance in August 2021, citing concerns about the exchange’s regulatory status in the country.

Authorities in the UK are cracking down on crypto companies. The FCA proposed in February a set of rules that could subject executives of crypto firms to two years in prison if they don’t meet certain conditions related to promotion. “Cryptoasset businesses marketing to UK consumers, including firms based overseas, must get ready for this regime,” said the watchdog in a statement.

The financial authority also stated that all crypto exchange providers — including crypto ATM operators — must be registered and comply with money laundering regulations.

A highly anticipated consultation paper for the U.K.’s upcoming crypto regulation was recently released. The proposals aim to establish the U.K.’s financial services sector at the forefront of crypto and avoid strict control measures that have gained traction worldwide. The document covers a wide range of topics, including algorithmic stablecoins, nonfungible tokens and initial coin offerings.

HSBC needs someone to helm its tokenization efforts

According to a job posting, HSBC is looking for a candidate who knows of digital assets, especially asset tokenization and custody.

HSBC, the British multinational bank that manages the largest amount of assets in Europe, doubled down on its interest in digital currencies. The bank is looking for a top executive to work with asset tokenization.

On Jan. 30, HSBC opened the GPBW product director of tokenization position with a hiring process scheduled to end by Feb. 13. According to the job description, the “tokenization director would be responsible for “designing and implementing” a global tokenization proposition and representing the bank in front of regulators and digital assets ecosystem.

The candidate should possess knowledge of digital assets, especially asset tokenization and custody, with “deep insights” into the industry and key geographical wealth markets.

This marks HSBC’s accelerating interest in digital currencies, which had been manifested earlier in a number of collaborations. In April 2022, the bank rolled out its metaverse investment product for wealthy clients in Singapore and Hong Kong. Earlier, it joined the United States Commodity Futures Trading Commission Global Markets Advisory Committee.

However, the main area of HSBC’s interest lies in the global development of the central bank digital currencies (CBDCs). In September 2021, HSBC Group CEO Noel Quinn outlined the firm’s commitment to supporting central bank digital currencies while stressing skepticism over risks associated with cryptocurrencies and stablecoins.

The British bank participated in the Federal Reserve Bank of New York’s 12-week proof-of-concept CBDC pilot. It was present at the launch of the Universal Digital Payment Network — a distributed ledger technology (DLT) platform that would serve a similar purpose to the SWIFT network for banks but for stablecoins and CBDCs. HSBC is also one of the 14 central and commercial banks collaborating with SWIFT in testing transactions with CBDCs and tokenized assets on existing financial infrastructure.

US Treasury yields are soaring, but what does it mean for markets and crypto?

The 10-year U.S. Treasury yield recently hit its highest level in 12 years, but how might this impact investors’ sentiment toward stocks and cryptocurrencies?

Across all tradeable markets and currencies, U.S. Treasurys — government bonds — have significant influence. In finance, any risk measurement is relative, meaning, if one insures a house, the maximum liability is set in some form of money.

Similarly, if a loan is taken from a bank, the creditor has to calculate the odds of the money not being returned and the risk of the amount being devalued by inflation.

In a worst-case scenario, let’s imagine what would happen to the costs associated with issuing debt if the U.S. government temporarily suspended payments to specific regions or countries. Currently, there is over $7.6 trillion worth of bonds held by foreign entities, and multiple banks and governments depend on this cash flow.

The potential cascading effect from countries and financial institutions would immediately impact their ability to settle imports and exports, leading to further carnage in the lending markets because every participant would rush to reduce risk exposure.

There is over $24 trillion in U.S. Treasurys held by the general public, so participants generally assume that the lowest risk in existence is a government-backed debt title.

Treasury yield is nominal, so mind the inflation

The yield that is widely covered by the media is not what professional investors trade, because each bond has its own price. However, based on the contract maturity, traders can calculate the equivalent annualized yield, making it easier for the general public to understand the benefit of holding bonds. For example, buying the U.S. 10-year Treasury at 90 entices the owner with an equivalent 4% yield until the contract matures.

*U.S. government bonds’ 10-year yield. Source: TradingView*

If the investor thinks that the inflation will not be contained anytime soon, the tendency is for those participants to demand a higher yield when trading the 10-year bond. On the other hand, if other governments are running the risk of becoming insolvent or hyperinflating their currencies, odds are those investors will seek shelter in U.S. Treasurys.

A delicate balance allows the U.S. government bonds to trade lower than competing assets and even run below the expected inflation. Although inconceivable a few years ago, negative yields became quite common after central banks slashed interest rates to zero to boost their economies in 2020 and 2021.

Investors are paying for the privilege of having the security of government-backed bonds instead of facing the risk from bank deposits. As crazy as it might sound, over $2.5 trillion worth of negative-yield bonds still exist, which does not consider the inflation impact.

Regular bonds are pricing higher inflation

To understand how disconnected from reality the U.S. government bond has become, one needs to realize that the three-year note’s yield stands at 4.38%. Meanwhile, consumer inflation is running at 8.3%, so either investors think the Federal Reserve will successfully ease the metric or they are willing to lose purchasing power in exchange for the lowest-risk asset in the world.

In modern history, the U.S. has never defaulted on its debt. In simple terms, the debt ceiling is a self-imposed limit. Thus, Congress decides how much debt the federal government can issue.

As a comparison, an HSBC Holdings bond maturing in August 2025 is trading at a 5.90% yield. Essentially, one should not interpret the U.S. Treasury yields as a reliable indicator for inflation expectation. Moreover, the fact that it reached the highest level since 2008 holds less significance because data shows investors are willing to sacrifice earnings for the security of owning the lowest-risk asset.

Consequently, the U.S. Treasury yields are a great instrument to measure against other countries and corporate debt, but not in absolute terms. Those government bonds will reflect inflation expectations but could also be severely capped if the generalized risk on other issuers increases.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.