HSBC buys Silicon Valley Bank UK in rescue deal

The UK government has struck a last-minute rescue deal for SVB UK, as it aims to reassure the thousands of science and technology companies that have accounts with the bank. 

The news follows the implosion of California-based Silicon Valley Bank, which US regulators shut on Friday. The collapse of SVB – which had an estimated $2.9tn of assets – has been described as the biggest financial crash of an individual bank since 2008. 

After frantic weekend talks between the government, regulators, and prospective buyers, it was agreed that the UK arm of the collapsed bank would be acquired by HSBC for a symbolic £1.  

The acquisition made “excellent strategic sense” and would complete immediately, said HSBC’s chief executive Noel Quinn.

Chancellor Jeremy Hunt confirmed the sale on Twitter and stressed that all customer deposits have been protected under the deal, with no taxpayer cash involved.

“I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise,” Hunt added. 

The collapse of SVB has sent shockwaves across the tech industry over the possible impact it could have on businesses. 

The bank, which specialised in lending to start-up firms, was founded in California in 1983. However, over the past few months, it has suffered under the pressure of higher interest rates, which made it harder for its customers to raise money through private fundraising or share sales.

The situation saw more and more clients withdrawing deposits until the bank was unable to raise enough money to plug losses from the sale of assets, mainly US government bonds,  affected by higher rates.

As of Friday, SVB UK had around £6.7bn of deposits and loans of about £5.5bn, while its balance sheet stood at £8.8bn, according to the Bank of England. The collapse could have affected 30 to 40 per cent of UK start-ups, a source told the BBC. 

Nonetheless, the Bank of England (BoE) attempted to reassure UK businesses, stressing that no other British banks had been directly affected.

“The wider UK banking system remains safe, sound, and well capitalised,” it added. “Customers can continue to contact SVB UK through the usual channels and borrowers should make any loan repayments to SVB UK as normal.”

The rescue of SVB UK was welcomed by British government ministers, regulators and technology start-ups. 

HSBC group chief executive Noel Quinn said: “SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.

“We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them.”

The British Private Equity & Venture Capital Association (BVCA) – the industry body representing venture capital investors – said the deal is “welcome news”.

“Confidence should return to markets and the affected businesses with an orderly transition and access to the cash frozen over the weekend,” said BVCA director-general Michael Moore. “We are continuing to monitor the situation and will analyse the details as they emerge later.”

However, not everyone agreed with the rescue, with the Bank of London calling the deal a “missed opportunity”.

“It cannot be right that, once again, the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position,” it stated. 

As markets opened on Monday, over 40 London-listed companies posted updates, including Moonpig, THG, Future and Naked Wines. The three firms said they had no material exposure to SVB UK, and had therefore not been affected.  

Nonetheless, two AIM-listed companies – Diaceutics and Polarean Imaging – suspended their shares from trading. 

“The restricted access to the funds has a significant impact on the company’s liquidity position and has led to material uncertainty over its ability to service certain working capital requirements in the short term,” Diaceutics said.

The business was worth around £95m before its shares were suspended.

Meanwhile, lung disease company Polarean Imaging said it “has sufficient cash outside of SVB to meet its immediate liquidity needs” – but $12.4m (£10.2m) of the $13.9m (£11.5m) it has in cash is held through SVB.

Most of that money should be accessible in time but possibly not immediately.

Despite the coordinated action, London’s FTSE 100 fell 2.5 per cent on Monday morning.

The rescue deal for the UK arm followed a statement by US regulators confirming that SVB’s American depositors would have access to all of their money on Monday.