Silicon Valley Bank: HSBC buys bank’s UK arm

Photo credit: DepositPhotos
Photo credit: DepositPhotos

HSBC has acquired the UK branch of the bankrupt US Silicon Valley Bank (SVB). This is wonderful news for UK tech companies that have stated that they may go bankrupt if they do not receive assistance.

Consumers and businesses who previously had to wait for their money can now receive it as usual.

The talks were overseen by the UK government and the Bank of England, who worked all night to reach an agreement that did not involve taxpayer funds.

HSBC stated it paid £1 for the UK branch of Silicon Valley Bank.

Silicon Valley Bank was shut down by regulators in the US on Friday. This was the largest bank failure in the United States since 2008.

Because of the implications for businesses, its failure sent shockwaves through the tech world. Some businesses warned the BBC that they would go out of business if their deposits were in jeopardy.

Worried about how firms would access cash on Monday morning, Chancellor Hunt, Prime Minister Theresa May, Bank of England Governor Mark Carney, HSBC executives, and civil employees worked rapidly to find a solution.

The Bank of England stated that the failure of Silicon Valley Bank had “materially impacted” none of the other UK banks and that the banking system remained “safe, sound, and well capitalized.”

Although the UK branch of Silicon Valley Bank only had a little more than 3,000 customers, its failure would have meant a risk to a sector that the government deems critical to the Kingdom’s future economic success.

According to Mr. Hunt, some businesses only had bank accounts with SVB UK. “As a result, we were in a scenario where some of our most essential and strategic enterprises could have been wiped out,” he explained.

However, he stated, “there was never a systemic risk to the UK’s financial stability.”

Toby Mather, CEO and co-founder of Lingumi, an education technology business, said that 85% of the company’s capital was locked up in the bank and that he had an “anxious weekend.”

Sebastian Weidt, CEO of Universal Quantum, a tech business with approximately 40 workers that kept all of its money with SVB, said the arrangement was a “great relief” after a few “unbelievably tense” days.

Although Silicon Valley Bank in the United States was experiencing financial difficulties, Silicon Valley Bank UK was in relatively excellent health when HSBC purchased it for £1.

It had enough money and was earning a good profit. But, according to Bank of England sources, the weekend intervention was more of a precautionary measure before the collapse of its US parent forced much staff to leave the UK business.

That means HSBC received a wonderful bargain due to its size and power. Authorities were confident that Europe’s largest bank could handle any risk SVB UK’s customers posed.

Silicon Valley Bank UK’s sole issue was its name. Even while this is hardly a Lehman Brothers moment, the fall of SVB US has demonstrated that many banks are riskier than they appear on paper. This is because they have all lost money on their investments in government bonds as interest rates have risen, making those bonds less valuable.

One reason bank stocks fell again on Monday is that investors are starting to think about what’s happening.

What occurred at Silicon Valley Bank?

The US agreed to a rescue package for the consumers of the US bank, and the UK has now agreed to a rescue agreement for the UK branch. The US agreement completely protects all depositors.

Silicon Valley Bank specialized in lending to new enterprises, and it worked with nearly half of the US venture-backed healthcare and technology companies that went public last year.

Rising interest rates made it difficult for its consumers to raise funds by selling shares or through private fundraising. This put the company under strain. Clients withdrew more deposits, continuing a pattern that began last week.

The bank failed in the United States on Friday because it couldn’t raise enough capital to offset losses from selling assets, primarily US government bonds, which were harmed by increased interest rates.

More than 200 tech industry leaders signed a letter requesting the government to intervene because of the repercussions on SVB’s UK operation and how they may affect other smaller UK IT enterprises.

Former investment banker Sir Philip Augar claimed the UK government and authorities had a “successful weekend avoiding a disaster.” However, he also noted that it was ironic that SVB went bankrupt when the government considered “loosening” restrictions in the financial services business.

Read Also: SVB: Money in failed bank is safe

Most people liked the HSBC agreement, but the Bank of London, the UK’s clearing bank, called it a “lost opportunity.”

The bank, one of the entities that put in a rescue proposal for Silicon Valley Bank UK, claimed it couldn’t be acceptable for the legacy banks, who have been awful to UK company owners for many years, to benefit from their existing strong position.