HSBC steps in to save UK arm of Silicon Valley Bank

  • By Michael Renn
  • Business Reporter, BBC News

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Watch: Jeremy Hunt: “We could have seen some of our most important companies wiped out”

HSBC has bought the UK arm of the collapsed US Silicon Valley Bank (SVB), giving relief to UK tech companies that had warned they could go bust without help.

Customers and businesses who have not previously been able to withdraw their funds can now access them as usual.

The Government and Bank of England held the talks and worked all night to agree the deal, which will not involve taxpayers’ money.

HSBC said it only paid £1 for the UK arm of SVB.

Speaking to the BBC, HSBC boss Noel Quinn said the deal was “too good an opportunity to pass up” and ensured that “a crisis in one institution did not become a systemic crisis”.

Silicon Valley Bank, which specialized in lending to tech companies, was shut down by US regulators on Friday in the largest US bank failure since 2008.

Its collapse has sent shockwaves across the tech industry over the potential impact on businesses, with some companies telling the BBC they could go bust if deposits weren’t secured.

Frantic talks have been held between Chancellor Jeremy Hunt, the Prime Minister, the Governor of the Bank of England, HSBC bosses and officials amid fears of how firms could access cash on Monday morning to find a solution.

The Bank of England said no other UK banks were “materially affected” by the SVB collapse and said the banking system remained “safe, sound and well capitalised”.

Although SVB’s UK arm was small, with just over 3,000 business customers, its collapse would have posed a risk to a sector the government sees as vital to the UK’s future economic success.

Mr Hunt said some of the firms only had bank accounts with SVB UK, “As a result we were faced with a situation where we could have seen some of our most important businesses, our most strategic businesses, wiped out and that would have been extreme dangerous”.

However, he added that there has “never been a systemic risk to our financial stability in the UK”.

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Toby Mather, founder of Lingumi, said he’s had a “fearful weekend”.

Toby Mather, CEO and co-founder of Lingumi, an education technology start-up, said 85% of his cash is tied up in the bank and he’s had a very “anxious weekend”.

“We had enough money in bank accounts outside the UK and enough income from our clients each week that we could look our staff in the eye at 9am this morning and say we could do payroll in two weeks, but we would have been very uncertain since then,” said Mr. Mather.

Sebastian Weidt, chief executive of Universal Quantum, a tech company that employs about 40 people and holds all of its funds at SVB, said the deal was a “huge relief” after a few “incredibly stressful” days.

Despite the US parent company struggling financially, Silicon Valley Bank UK was in reasonable financial shape when it was bought by HSBC for £1.

It had sufficient capital and made reasonable profits. Bank of England sources confirmed that this weekend’s intervention was more of a pre-emptive strike before the collapse of its US parent company triggered mass divestments of its UK operations.

That means HSBC, given its size and strength, got a hell of a deal – with regulators confident that Europe’s largest bank could easily take on any risk SVB UK’s customers might have.

It seems the only thing wrong with SVB UK was his name. While this wasn’t a Lehman Brothers moment, the collapse of SVB US made it clear that many banks are riskier than they appear on paper, having all suffered losses on their government bond investments as interest rates soared shot – which pushed their value down.

One reason bank stocks are lower again on Monday as the thought trickles in among nervous investors.

What Went Wrong at Silicon Valley Bank?

SVB specialized in lending to start-up companies and served nearly half of the US venture-backed technology and healthcare companies that went public last year.

The company was under pressure as higher interest rates made it difficult for its clients to raise money through private fundraising or stock sales. More customers were withdrawing deposits, a trend that snowballed last week.

The bank collapsed in the US on Friday after failing to raise enough money to offset losses on sales of assets, mostly US Treasury bonds, which were hit by higher interest rates.

The impact on SVB’s UK arm sparked fears it could lead to the collapse of many of Britain’s smaller tech companies, with more than 200 tech chiefs signing a letter urging the government to intervene.

Former investment banker Sir Philip Augar said the UK government and regulators had had a “good weekend actually avoiding a crisis” but warned the collapse of the SVB was ironic, just as the government was discussing “easing” of regulations in the financial services industry .

“It shows that this is a dangerous industry that can wreak havoc on the entire economy if not properly controlled,” he said.

“It has the ability to deliver a nasty shock.”

While the deal with HSBC was widely welcomed, the Bank of London – a UK clearing bank – said it was a “missed opportunity”.

The bank, which was among the companies that had put forward a bailout offer for SVB UK, said: “It cannot be right that the traditional banks, which have provided British entrepreneurs with a poor service for many years, are bouncing back from their already dominant Position benefit position.”

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