HSBC has purchased the UK arm of Silicon Valley Bank (SVB) for £1, rescuing it from collapse and bringing relief to UK tech firms at risk of bankruptcy. Customers and businesses who had been unable to access their funds will now be able to do so. The UK government and the Bank of England led the negotiations, with no taxpayer money involved in the deal.
HSBC’s CEO, Noel Quinn, said the deal was too good to miss and prevented a crisis in one institution from becoming a systemic one. The US regulators shut down SVB on Friday, the largest US bank failure since 2008, leading to concerns about the impact on businesses.
Frantic talks were held between Chancellor Jeremy Hunt, the prime minister, the Bank of England governor, HSBC bosses and civil servants to find a solution amidst fears over how firms would access cash on Monday morning. The collapse of the UK arm of SVB, although small, could have presented a risk to the UK’s future economic success.
However, the Bank of England stated that no other UK banks had been significantly affected by SVB’s collapse and the banking system remained safe and sound. The government considers the tech sector pivotal to the UK’s future economic success, and the collapse of SVB could have wiped out some of the country’s most important and strategic firms.
Nevertheless, the Chancellor confirmed that there was never a systemic risk to the UK’s financial stability.
Toby Mather, the CEO and co-founder of Lingumi, an educational technology start-up, revealed that 85% of the company’s funds were held by the bank, and he had a very anxious weekend.
Despite this, he said they had enough money in bank accounts outside the UK and enough revenue coming in each week to make payroll in two weeks. Sebastian Weidt, the CEO of Universal Quantum, a technology firm that employs about 40 people and held all of its funds with SVB, expressed relief at the deal.
HSBC acquired the UK arm of Silicon Valley Bank for only £1, despite the fact that it was in reasonable financial health with adequate capital and profits. Bank of England sources confirmed that the intervention was a preventive measure before the collapse of its US parent sparked mass withdrawals from the UK business.
HSBC was able to make this deal thanks to its size and strength, which regulators believed could handle any risk from SVB UK’s customers. The collapse of SVB US has highlighted that many banks are riskier than they appear on paper due to their losses on government bond investments as interest rates have increased, reducing their value.
As a result, bank shares have fallen again on Monday, causing concern for nervous investors.
The UK arm of Silicon Valley Bank (SVB) was acquired by HSBC for £1 in a rescue deal after its US parent collapsed on Friday. SVB specialized in lending to start-ups and served nearly half of US venture-backed technology and healthcare firms that went public in 2022.
The bank struggled as higher interest rates made it harder for its clients to raise money through private fundraising or share sales, leading to a trend of deposit withdrawals. The bank’s collapse occurred because it failed to raise enough money to plug losses from the sale of assets, mainly US government bonds, affected by higher interest rates.
The UK tech sector, fearing a knock-on effect, had called for the government to step in. While the deal with HSBC was generally welcomed, the Bank of London criticized it as a “missed opportunity” and said the heritage banks that had provided poor service to UK entrepreneurs over the years should not benefit from their dominant position.