The UK branch of the bankrupt US Silicon Valley Bank (SVB) has been bought by HSBC. This is good news for UK tech companies that said they might go bankrupt without help.
Customers and businesses that could only get their money after can now get it as usual.
The government of the UK and the Bank of England were in charge of the talks, and they worked all night to come up with a deal that didn’t use any taxpayer money.
HSBC said it bought the UK branch of Silicon Valley Bank for just £1.
US regulators shut down Silicon Valley Bank on Friday. This was the biggest failure of a US bank since 2008.
Its failure sent shock waves through the tech industry because of what it could mean for businesses. Some companies told the BBC they could leave business if their deposits were unsafe.
Concerned about how businesses could get cash on Monday morning, Chancellor Hunt, the prime minister, the governor of the Bank of England, HSBC bosses, and civil servants worked quickly to find a solution.
The Bank of England said that the collapse of SVB had not “materially affected” any other UK banks and that the banking system was still “safe, sound, and well capitalized.”
Even though the UK branch of SVB only had a little more than 3,000 businesses as customers, its failure would have created a risk to the sector that the government sees as key to the UK’s economic success in the future.
Mr. Hunt said that some companies only had bank accounts with Silicon Valley Bank UK. “Because of that, we were in a situation where some of our most important and strategic companies could have been wiped out, which would have been very dangerous,” he said.
He did say, though, that there was “never a systemic risk to the UK’s financial stability.”
Toby Mather, the CEO and co-founder of an education technology startup, Lingumi, said that 85% of the company’s cash was locked up in the bank and that he had an “anxious weekend.”
Sebastian Weidt, the CEO of Universal Quantum, a tech company with about 40 employees that kept all of its money with SVB, said the deal was a “huge relief” after a few “unbelievably stressful” days.
Even though Silicon Valley Bank in the US was having money problems, Silicon Valley Bank UK was in pretty good shape when HSBC bought it for £1.
It had enough money and was making a decent profit. Sources at the Bank of England confirmed that the intervention over the weekend was more of a preventive move before the collapse of its US parent caused a lot of people to pull out of the UK business.
That means HSBC got a great deal because of its size and strength. Regulators were sure Europe’s biggest bank could handle any risk from SVB UK’s customers.
Silicon Valley Bank UK’s only problem was its name. Even though this isn’t a Lehman Brothers moment, the failure of Silicon Valley Bank US has shown that many banks are riskier than they appear on paper. This is because all of them have lost money on their investments in government bonds as interest rates have gone up, making those bonds less valuable.
One reason bank stocks are going down again on Monday is that investors are starting to think about what’s happening.
What happened at the Silicon Valley Bank?
The US agreed to a rescue deal for the US bank’s customers, and now the UK has agreed to a rescue deal for the UK branch. The US deal fully protects all depositors.
Silicon Valley Bank specialized in giving loans to new businesses, and last year it worked with close to half of the US venture-backed healthcare and technology companies that went public.
Higher interest rates made it difficult for its customers to raise funds through selling shares or private fundraising. This put pressure on the company. More clients pulled out their deposits in a trend that grew last week.
Friday, the bank failed in the US because it couldn’t get enough money to cover losses from selling assets, mostly US government bonds, that were hurt by higher interest rates.
More than 200 tech company leaders signed a letter asking the government to step in because of the effects on SVB’s UK branch and how they might affect other smaller UK tech companies.
Sir Philip Augar, a former investment banker, said that the UK government and regulators had a “good weekend in actually avoiding a crisis.” He also said that it was ironic that SVB went bankrupt while the government was thinking about “loosening” regulations in the financial services industry.
Read Also: Money in failed SVB is safe – US government
Most people liked the deal with HSBC, but the Bank of London, a clearing bank in the UK, said it was a “missed opportunity.”
The bank, one of the companies that put in a rescue bid for Silicon Valley Bank UK, said it couldn’t be right that the heritage banks, which have been bad to UK business owners for many years, should again benefit from their already strong position.