HSBC has bought the UK operations of Silicon Valley Bank, the lender which specialises in technology companies, after its US parent company went bust. Fears had been raised that the failure of the bank would lead to widespread chaos in the UK tech sector, but the deal means companies that use SVB will be able to access their funds as normal today.
The deal was struck after a weekend of intense negotiations between the banks, the Treasury, and the Bank of England, which has facilitated the deal using powers granted to it by the Banking Act 2009.
Silicon Valley Bank, which serves a wide array of start-ups and venture capitalists, collapsed in the US on Friday. It is the biggest failure of a bank since the 2008 financial crisis.
How Silicon Valley Bank UK’s takeover by HSBC happened
Silicon Valley Bank UK was put into a bank insolvency procedure on Friday by the Bank of England. This protects deposits of up to £85,000 should a financial institution go out of business.
At the point of failure, Silicon Valley Bank UK had a total balance sheet size of approximately £8.8bn, a Bank of England statement this morning said, with a deposit base of approximately £6.7bn. Despite this, the Bank of England said it believed the lender’s position to be non-recoverable due to the lack of confidence in its ability to meet its commitments in future.
HSBC has paid £1 for the UK operations of Silicon Valley Bank.
Noel Quinn, HSBC CEO, said UK customers could “continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC”.
No taxpayer money has been spent supporting Silicon Valley Bank, added Chancellor Jeremy Hunt.
“We have worked urgently to deliver on that promise and find a solution that will provide SVB UK’s customers with confidence,” Hunt said.
“Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order.
“HSBC is Europe’s largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them.”
If Silicon Valley Bank UK had collapsed, the knock-on effect for tech companies would have been significant.
Julian David, CEO of tech trade organisation techUK, spelled out the implications for the sector in a statement released over the weekend prior to this morning’s announcement. “This is not just as a major player in funding growth businesses across tech from fintech to biotech and other areas but also its role as the main bank used by such companies for loans and deposits,” David said.
“This has led to many companies facing operational questions with regard to making payroll and supplier payments as well as the issue of future funds for growth.”
Silicon Valley Bank failure hits tech in US and beyond
Silicon Valley Bank in the US was shut down by regulators on Friday. It got into difficulties following the sale of assets, mainly US government bonds, the value of which had been negatively impacted by rapidly rising interest rates, and left it looking at a substantial loss.
An announcement that the bank was seeking to raise $2.25bn to plug the gap saw many investors withdrawing their funds, and raised fears of a full run on the bank.
The US government has stepped in to take control and said this morning that anyone with cash in the bank would be able to access their funds as normal while its long-term future is resolved.
“The US banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” a joint statement from the US Treasury, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said.
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