A contract has to have 'consideration' (an exchange of value) to be legally binding in the UK. HSBC are taking this bank for free, but since you can't do that they say £1.
An even funnier term comes out of free property leases. Due to some historical convention the consideration is sometimes still written as 'one peppercorn if demanded'!
when my colleagues and I bought the IP off of the company we were dissolving, one of them bought a 1kg container of peppercorns for each of us to draw our consideration from.
The peppercorns are still taped to the folder of company documents in my filing cabinet
yep, i am trying to extend the lease on a flat i own in london, and the contract my solicitor drew up cited the ground rent as one peppercorn. actual ground rent i am currently paying is 100 gbp p/a.
The lease for a piece of demised land which is now part of my garden says:
> as aforesaid for a term of Nine hundred and ninety nine years from the date hereof subject nevertheless to the proviso for re-entry hereinafter contained YIELDING AND PAYING THEREFOR [sic] during the said term a yearly rent of one peppercorn (if demanded) to be paid on the First day of January every year
Possibly the most impenetrable sentence I've ever read, and I had to look up the whole peppercorn thing. Nobody's ever requested anything so am yet to post any peppercorns.
No, it's not not always, or even usually, that. This reflects that it's a failing business (like Barings) where the real cost to the purchaser is taking on the risks and liabilities and injecting whatever capital and effort needed to extract value from the remaining assets.
Many sales of solvent banks happens regularly too.
To be a legal contract in England (and probably anywhere whose laws are based on English commmon law) there has to be an exchange or consideration of a nominal amount between parties. It’s the same concept as why peppercorn rents are paid
With huge uncertainties in the assets & liabilities, no time to narrow those down before deciding, executives often too optimistic about such situations, and the regulators obviously "shopping" potential buyers for the least-rational optimists ...my bet would be that it's worth far less.
The UK branch was not at risk, and was in much better shape.
Even if they had to close because their parents company was insolvent, you'd expect whomever is responsible for selling assets would want to get a better deal to get money back for shareholders.
I'm not sure we know that SVB UK was actually in better shape. They made representations to that effect last week, but the fact the banking authorities moved in so quickly implies that all was not well.
Of course if they have sold the assets for well under real value, you'd expect some level of legal challenge from the shareholders who are losing out under this deal.
Is being at risk enough for the Bank of England to come in and shut you down? I have a feeling it has to be more than just "at risk" for something that drastic to happen.
I also don't understand it. From what I've been reading, the UK SVB bank was in significantly better shape... But there was a fear that people might also run on it as well out of fear/misunderstanding... And that is obviously bad for banks in general.
> the UK SVB bank was in significantly better shape
The Bank of England seems to disagree with you. Not sure why they would think placing it into the "Bank Insolvency Procedure" is appropriate based on just rumors, they must sit on more information than both you and me.
The only logical reason that I see is that SVB UK is actually not in a good shape, and that they just copy-pasted the "good practices" of the parent company, and ended up in the same situation, but without the bank run yet.
Otherwise, it's just a gift from gods, to pay 1 GBP for something worth 10B+ GBP and with 1B+ GBP in positive balance.
Its accounting nonsense basically. Legally banks are allowed to value assets like bonds which they intend to hold to maturity at the original purchase value, because well, eventually they should get their money back.
Issues only arise when they are forced to sell these assets because then they must acknowledge the fact they're not actually worth as much as the bank says they are.
My guess is that mark-to-market the value of SVB UK's assets don't exceed total liabilities, in which case it makes no sense to purchase for their assets alone.
I see you're expanding your comment from "It's literally in the name", adding facts as you make your way through the wikipedia article (scaling back to just "chinese roots" when you realised it's headquartered in London, then adding Ping An + Central Huijin Investment).
I think people took issue with the pretty extreme claim that it is an "arm of the CCP" - by now it is no secret and no surprise that the Chinese government have sizeable investments overseas. They're also the second-largest foreign holder of US treasuries if you wanna go wild with that one.
It's complex. It started as the Hongkong and Shanghai Banking Corporation, and was historically based in Hong Kong. During the 1990s it moved its headquarters to London ahead of Hong Kong being returned to China, and amongst other international expansions and acquisitions bought the Midland Bank, which is now the HSBC UK high street bank[1]. It still has a large presence in the far east (and indeed its current strategy is a "pivot" to the east), it's the complexities around its interactions with China that the original post refer to.
I suspect the main "political" point of the acquisition, if any, is UK domestic factor that its just done the UK government a big favour by solving the SVB UK issues without the government having to spend any money. No doubt they can remind the government of that fact in the future.
[1] SVB UK has specifically been acquired by HSBC UK Bank plc, the ringfenced subsidiary that owns the UK "high street" operation.
When I was a kid I heard that some local farmers paid a peppercorn rent to the our local church to be able to farm some fields. At the time I really thought they were literally paying in pepper corns.
it's because rent used to be paid as a portion of salary, which was an annual salt allowance before it referred to money. Pepper was "the other table spice" and was much cheaper, so was used in it's place to make documents legal.
55 comments
[ 3.5 ms ] story [ 111 ms ] threadHowever, specifically excluded are SVB's assets/liabilities:
> The assets and liabilities of the parent companies of SVB UK are excluded from the transaction.
A contract has to have 'consideration' (an exchange of value) to be legally binding in the UK. HSBC are taking this bank for free, but since you can't do that they say £1.
An even funnier term comes out of free property leases. Due to some historical convention the consideration is sometimes still written as 'one peppercorn if demanded'!
The peppercorns are still taped to the folder of company documents in my filing cabinet
> as aforesaid for a term of Nine hundred and ninety nine years from the date hereof subject nevertheless to the proviso for re-entry hereinafter contained YIELDING AND PAYING THEREFOR [sic] during the said term a yearly rent of one peppercorn (if demanded) to be paid on the First day of January every year
Possibly the most impenetrable sentence I've ever read, and I had to look up the whole peppercorn thing. Nobody's ever requested anything so am yet to post any peppercorns.
Not the first time it happens.
In all seriousness, they are also buying the all the liabilities and illiquid assets. So current value wise, this seems about right.
However long term, a lot of these customers will stick with HSBC and may generate a lot of future value.
Many sales of solvent banks happens regularly too.
https://en.m.wikipedia.org/wiki/Consideration#Nominal_consid...
There’s a collection of once mighty companies you could buy for the price of a burger:
https://www.bbc.co.uk/news/business-44250900.amp
With huge uncertainties in the assets & liabilities, no time to narrow those down before deciding, executives often too optimistic about such situations, and the regulators obviously "shopping" potential buyers for the least-rational optimists ...my bet would be that it's worth far less.
Are these people dumb or something? Why would you sell that?
Even if they had to close because their parents company was insolvent, you'd expect whomever is responsible for selling assets would want to get a better deal to get money back for shareholders.
Of course if they have sold the assets for well under real value, you'd expect some level of legal challenge from the shareholders who are losing out under this deal.
The Bank of England seems to disagree with you. Not sure why they would think placing it into the "Bank Insolvency Procedure" is appropriate based on just rumors, they must sit on more information than both you and me.
Otherwise, it's just a gift from gods, to pay 1 GBP for something worth 10B+ GBP and with 1B+ GBP in positive balance.
To a bank, a loan is an asset and a deposit is a liability.
SVB UK had loans of around £5.5bn and deposits of around £6.7bn
So I guess that the booked value of their assets was a lot higher than the actual market value, and so their net value is negative.
Issues only arise when they are forced to sell these assets because then they must acknowledge the fact they're not actually worth as much as the bank says they are.
My guess is that mark-to-market the value of SVB UK's assets don't exceed total liabilities, in which case it makes no sense to purchase for their assets alone.
+ the largest shareholder of HSBC is Ping An (whose major owner is Central Huijin Investment = Central Communist Government)
But you are right.
Thank you for sharing the view on US-treasuries, it is very interesting, and I didn't expect it to be that large portion.
https://ticdata.treasury.gov/Publish/mfh.txt
I didn't expect to see Ireland in the top 10.
With a whopping ~8% stake.
I suspect the main "political" point of the acquisition, if any, is UK domestic factor that its just done the UK government a big favour by solving the SVB UK issues without the government having to spend any money. No doubt they can remind the government of that fact in the future.
[1] SVB UK has specifically been acquired by HSBC UK Bank plc, the ringfenced subsidiary that owns the UK "high street" operation.
This links to https://en.wikipedia.org/wiki/Peppercorn_(law)
When I was a kid I heard that some local farmers paid a peppercorn rent to the our local church to be able to farm some fields. At the time I really thought they were literally paying in pepper corns.
The lease for my old flat in London stipulated ground rent in the amount of one peppercorn per annum, so it’s not impossible!
https://www.bathchronicle.co.uk/news/bath-news/university-ba...
I find this hilarious. This is probably all from some template, but talking about "funding" a 1 euro transaction is funny.
https://www.indiatimes.com/worth/news/hindenburg-trolled-for...