UK Government Rescues SVB UK in Last-Minute Deal Following Silicon Valley Bank’s Collapse
HSBC Acquires SVB UK for £1 to Reassure Science and Technology Companies with Accounts at the Bank
The UK government has struck a last-minute rescue deal for SVB UK, the UK arm of the collapsed Silicon Valley Bank (SVB), which had an estimated $2.9tn of assets. The deal aims to reassure the thousands of science and technology companies that have accounts with the bank following the implosion of the California-based SVB, which US regulators shut on Friday. The collapse of SVB, which specialised in lending to start-up firms, has been described as the biggest financial crash of an individual bank since 2008.
Following intense weekend negotiations involving government officials, regulators, and potential buyers, HSBC has acquired SVB UK for a nominal fee of £1. HSBC’s CEO Noel Quinn announced that the purchase was strategically advantageous and would be finalized immediately. Chancellor Jeremy Hunt confirmed the acquisition on Twitter and emphasized that all customer deposits were safeguarded under the agreement, without requiring any public funds. Hunt further stated that their commitment to supporting the technology industry was upheld, as promised earlier.
The British government officials, regulators, and technology start-ups expressed their approval of the successful rescue of SVB UK. The British Private Equity & Venture Capital Association (BVCA), which serves as the representative organization for venture capital investors, also welcomed the news of the deal. BVCA’s director-general, Michael Moore, stated that the deal should bring back confidence to the markets and affected businesses, as they will now have an organized transition and access to the funds that were frozen over the weekend.
Tech Industry Shocked by Collapse of SVB, Which Could Have Affected 30 to 40 Per Cent of UK Start-Ups
The collapse of Silicon Valley Bank (SVB) has caused concern throughout the tech industry as many businesses had accounts with the bank. As per the Bank of England, SVB UK had deposits of approximately £6.7bn and loans worth about £5.5bn, with a balance sheet of £8.8bn as of Friday. There are worries that this collapse could impact 30 to 40 percent of UK start-ups, according to a source that spoke to the BBC.
SVB’s downfall was attributed to the mounting pressure of increased interest rates that made it challenging for its clients to generate funds via private fundraising or share sales. Consequently, numerous clients began withdrawing their deposits, leading to a situation where the bank could not collect sufficient funds to offset its losses resulting from the sale of assets, particularly US government bonds that were impacted by the elevated rates.
Despite the collapse of SVB, the Bank of England sought to allay concerns among UK businesses by stating that no other banks in the country had been impacted directly. It emphasized that the wider UK banking system remained secure, robust, and adequately capitalized. The bank also assured customers that they could continue to reach out to SVB UK through regular communication channels, and borrowers should continue making loan repayments to SVB UK as usual.
Diaceutics and Polarean Imaging Suspend Shares as London’s FTSE 100 Falls 2.5 Per Cent
At the start of Monday’s market, more than 40 London-listed companies, including Moonpig, THG, Future, and Naked Wines, released updates regarding SVB UK’s collapse. While these three firms confirmed that they had no significant exposure to the bank and hence had not been impacted, two AIM-listed firms – Diaceutics and Polarean Imaging – suspended their shares from trading due to their reliance on SVB UK’s services.
According to Diaceutics, “The limitation on accessing the funds has had a considerable effect on the liquidity position of the company and has generated substantial uncertainty regarding its ability to fulfill certain working capital needs in the near future.” Before its shares were suspended, the company was valued at approximately £95m.
Market Reaction and Future Implications
Despite the coordinated action, London’s FTSE 100 fell 2.5 per cent on Monday morning, reflecting investor concerns over the impact of the SVB UK collapse on the tech sector.
The acquisition of SVB UK by HSBC has been welcomed by British government ministers, regulators, and technology start-ups, who see it as a positive move to maintain the stability of the UK’s banking system.
The rescue deal is expected to reassure thousands of science and technology companies that have accounts with SVB UK. However, the collapse of the bank has sent shockwaves across the tech industry, leading to fears of the possible impact on businesses.
Established in 1983 in California, SVB was a bank that focused on providing loans to emerging companies. With around $2.9tn in assets, SVB’s downfall has been identified as the largest single-bank financial collapse since 2008.
The Bank of England has assured that the broader UK banking system is secure, well-resourced, and financially sound. Customers can communicate with SVB UK through their standard channels, and borrowers must continue to pay their loan obligations to SVB UK as per usual.
Conclusion
The acquisition of SVB UK by HSBC for a symbolic £1 has been hailed as a welcome move to maintain the stability of the UK’s banking system. The deal is expected to reassure thousands of science and technology companies that have accounts with SVB UK.
However, the collapse of SVB has sent shockwaves across the tech industry, leading to fears of the possible impact on businesses. The wider UK banking system remains safe, sound, and well-capitalized, according to the Bank of England, and customers can continue to contact SVB UK through the usual channels.
The situation underscores the importance of maintaining a robust and resilient banking system to ensure the smooth functioning of the economy.
