HSBC buys Silicon Valley Bank UK in rescue deal to avoid tech sector chaos

The 11th-hour sale was agreed after all-night talks between the Government and the Bank of England.
The 11th-hour sale was agreed after all-night talks between the Government and the Bank of England.

HSBC has bought the UK arm of collapsed US lender Silicon Valley Bank in a last-minute rescue deal to avert a crisis in Britain’s technology sector.

The sale – for a nominal sum of £1 – was agreed after all-night talks between the Government and the Bank of England to try to secure a sale of Silicon Valley Bank UK (SVB UK) amid fears that the tech sector would have been thrown into chaos amid the fallout from the failure of the California-based lender.

Chancellor Jeremy Hunt warned that some of the UK’s leading tech companies could have been “wiped out” if a solution had not been found after Silicon Valley Bank went bust last Friday.

But he confirmed that all customer deposits have been protected under the sale to HSBC, with no taxpayer cash involved.

Customers and businesses, who had been left unable to withdraw money since the Friday collapse, are now able to access cash as normal, he added.

The US government also moved to stop a potential wider banking crisis after the failure of Silicon Valley Bank – the largest failure of a bank since the 2008 financial crisis – by stepping in to protect all customer deposits.

It came as the spread began to take hold, with regulators announcing that New York-based Signature Bank had also failed and was being seized on Sunday.

But financial markets remained sceptical that the contagion has been contained, with the FTSE 100 Index down by nearly another 2% on Monday despite the co-ordinated action.

Banks and financial stocks were among those seeing further steep falls after plunging on Friday.

Mr Hunt told broadcasters there was “never a systemic risk to our financial stability in the UK” from SVB UK’s failure, but warned of the danger British companies faced on Monday morning if a way forward had not been found.

He said: “When you have very young companies, very promising companies, they’re also fragile.

“They need to pay their staff and they were worried that, as of 8am this morning, they might literally not be able to access their bank account.

“For that reason, we were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”

It is understood that Prime Minister Rishi Sunak was making phone calls from the plane to San Diego during weekend SVB UK rescue talks.

Asked whether the PM was personally involved in the talks, a No 10 spokesman said: “He (Mr Sunak) was in conversation with the Chancellor and the Bank of England, yes.”

SVB specialises in lending to start-up technology companies and is a key banking partner for venture capital firms, with more than 3,000 customers in the UK.

SVB UK had around £6.7 billion of deposits and loans of about £5.5 billion as at Friday last week, while its balance sheet stood at £8.8 billion, according to the Bank of England.

But the Bank said the “scale of the deterioration of liquidity and confidence means that, in the view of the Bank and the Prudential Regulation Authority, the position was not recoverable”.

It therefore stepped in to use resolution powers for stabilising failing banks that were brought in following the financial crisis.

The Bank stressed that all services will continue to operate as usual at SVB UK following the deal, with all staff remaining employed by the bank.

The wider UK banking system “remains safe, sound, and well capitalised”, the Bank added.

HSBC also moved to reassure SVB UK customers and said the deal “makes excellent strategic sense for our business in the UK”.

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.”

SVB imploded and had its assets seized by US regulators on Friday, just two days after Silvergate Capital, a central lender to the crypto industry, said last Wednesday that it would be winding down operations and liquidating its bank.

The Bank of England had subsequently said it intended to order the UK subsidiary into insolvency from Sunday night, sparking a scramble to secure a rescue deal before the deadline.

The Bank of London – a UK clearing bank – was among firms that were involved in early-stage talks and had put forward a rescue bid for SVB UK.

It criticised the sale to HSBC as a “missed opportunity”.

Bank of London said: “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.”

But the British Private Equity & Venture Capital Association (BVCA) – the industry body representing venture capital investors, which hold thousands of investments in UK tech and science firms, many of which have accounts with SVB UK – said the deal was “welcome news”.

BVCA director-general Michael Moore said: “Confidence should return to markets and the affected businesses with an orderly transition and access to the cash frozen over the weekend.”