- By Michael Race
- Business Journalist, BBC News
HSBC has decided to buy the UK arm of the bankrupt US Silicon Valley Bank (SVB), bringing relief to UK tech companies that have warned they could go bankrupt on their own.
Customers and businesses that were unable to withdraw their money will now be able to access it normally.
The government and the Bank of England led the talks and worked through the night to hammer out the deal, which involves no taxpayers’ money.
HSBC said it only paid £1 for the UK branch of SVB.
Speaking to the BBC, HSBC boss Noel Quinn said the deal had been “too good an opportunity to miss” and had ensured “that a crisis in one institution does not become a systemic crisis”.
Silicon Valley Bank – which specializes in lending to technology companies – was shut down by US regulators on Friday in what was the biggest failure by a US bank since 2008.
Its collapse sent shockwaves through the tech industry over the possible impact it could have on businesses, with some companies telling the BBC they could go bankrupt if deposits were not secured.
With fears over how businesses could access cash on Monday morning, frantic discussions took place between Chancellor Jeremy Hunt, the Prime Minister, the Governor of the Bank of England, HSBC bosses and officials to find a solution.
The Bank of England said no other UK bank had been “significantly affected” by SVB’s collapse and said the banking system remained “safe, sound and well capitalised”.
Although SVB’s UK branch was small with just over 3,000 corporate clients, its collapse would have posed a risk to a sector the government considers essential to the UK’s future economic success.
Mr Hunt said some of the companies only had bank accounts with SVB UK, “so for that reason we were faced with a situation where we could have seen some of our most important companies, our more strategic, destroyed and that would have been extremely dangerous”.
However, he added that there was “never a systemic risk to our financial stability in the UK”.
Toby Mather, chief executive and co-founder of Lingumi, an educational technology start-up, said 85% of his cash was bank-related and he had a “very anxious weekend”.
“We had enough money in bank accounts outside the UK and enough revenue coming in from our customers each week that we could look our staff in the eye at nine this morning and say we can do the payroll. in two weeks, but it would have been very uncertain from then on,” Mather said.
Sebastian Weidt, chief executive of Universal Quantum, a technology company that employs around 40 people and holds all of its funds with SVB, said the deal was a “huge relief” after an “incredibly stressful” few days.
Although its US parent company had financial difficulties, Silicon Valley Bank UK was in good financial shape when it was bought for £1 by HSBC.
It had sufficient capital and made reasonable profits. Bank of England sources confirmed that the weekend’s intervention was more of a preemptive strike before the collapse of its US parent company triggered mass withdrawals from UK operations.
It means HSBC has secured a hell of a deal thanks to its size and strength – with regulators confident Europe’s biggest bank could easily take on any risk from SVB UK customers.
It seems the only thing wrong with SVB UK was their name. Although not a Lehman Brothers moment, what the collapse of SVB US has highlighted is that many banks are riskier than they appear on paper, because they all suffered losses on their investments in government bonds as interest rates soared, driving their value down.
One of the reasons bank stocks are down again on Monday as that thought takes hold among nervous investors.
What happened at Silicon Valley Bank?
SVB specializes in lending to start-ups, and the company has served nearly half of the venture capital-backed U.S. tech and healthcare companies that went public last year.
The company was under pressure as higher interest rates made it harder for its clients to raise funds through private fundraising or stock sales. More customers were withdrawing deposits in a trend that snowballed last week.
The bank collapsed in the United States on Friday after failing to raise enough money to make up for losses from the sale of assets, mainly US government bonds, which were hurt by higher rates.
The ripple effect on SVB’s UK arm has raised fears it could lead to the collapse of many smaller UK tech companies, with more than 200 tech bosses signing a letter calling on the government to intervene.
Former investment banker Sir Philip Augar said the UK government and regulators had had a “good weekend to avoid a crisis”, but warned there was an irony in SVB’s collapse in the UK. just as the government was considering “loosening” regulations in the financial services sector. .
“It shows that it is a dangerous industry that can cause damage to the whole economy if not properly controlled,” he said.
“He 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 companies that had put forward a bailout bid for SVB UK, said: “It is not right that once again the heritage banks which have provided poor service to UK entrepreneurs for so many years many years benefit from their already dominant position.”