HSBC to buy Silicon Valley Bank UK for £1 in rescue deal

Takeover arranged by government is likely to save British startups from big losses after US bank’s collapse

The UK government has struck a last-minute deal for HSBC to buy Silicon Valley Bank’s UK operations, saving thousands of British tech startups and investors from big losses after the biggest bank failure since 2008.

The takeover will override the Bank of England’s initial decision to place SVB UK into insolvency, after a run on the lender that was originally sparked by fears over a multibillion-pound shortfall on the US parent company’s balance sheet. The US bank was closed and its assets seized by authorities on Friday.

While US regulators also revealed a rescue package to save American customers’ deposits in full, and provide fresh liquidity to the banking sector, investor fears had not been calmed. Those jitters dragged down global bank stocks and sent the FTSE 100 down more than 2% on Monday. HSBC’s shares fell 4%.

The acquisition – which cost HSBC £1 – followed overnight talks between Downing Street, the Bank of England and HSBC bosses including the chief executive, Noel Quinn, as authorities rushed to protect the finances of SVB UK’s 3,500 customers. Those customers included venture capital investors and hundreds of tech startups that feared they would go bust if their deposits were wiped out.

“This morning, the government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC,” the chancellor, Jeremy Hunt, said on Twitter. “Deposits will be protected, with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.”

The Bank of England said the private deal would “stabilise” SVB UK, which made pre-tax profits of £88m last year and held about £6.7bn in deposits. It would also “minimise disruption to the UK technology sector and support confidence in the financial system”, the central bank said.

HSBC’s Quinn said: “This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”

Authorities had been considering a range of options to help SVB UK customers pay wages and suppliers, including an emergency fund that could provide a cash lifeline to support startups, as well as government-guaranteed loans for the sector, similar to those offered to businesses during the Covid crisis, but they are understood to have preferred a private deal.

It followed a tense 72 hours, with Rishi Sunak having been locked in weekend talks with the Bank of England governor, Andrew Bailey, and Hunt, who warned that the tech and life sciences sectors were at “serious risk” as a result of the bank’s collapse.

HSBC was chosen over a handful of rivals that also expressed interest in taking over SVB UK, including the small business lender OakNorth, a Middle Eastern investment fund, and a consortium of private equity firms led by the fledgling clearing bank Bank of London.

While analysts said there was little chance of contagion across the banking sector – given that the biggest banks serve a wider range of customers and have plenty of capital – tech startups and investors were worried about ripple effects. A group of more than 200 tech executives said in an open letter to Hunt over the weekend that the loss of deposits had the potential to cripple the industry, with many businesses at risk of falling into insolvency overnight.

The Treasury summoned investors and industry lobby groups for an emergency meeting on Saturday as they tried to gauge the severity of SVB crisis.

The final solution will safeguard the deposits of burgeoning businesses, with SVB UK customers ranging from the payments darling Wise, the cybersecurity firm DarkTrace and the ratings website Trustpilot, to small startups offering online auction platforms, tech services to the pharmaceuticals industry and AI for the maritime sector.

Dom Hallas, the executive director of the startup lobby group Coadec, said: “The government deserves huge credit. From the very top, to HM Treasury who understood the challenge and gripped it, to the huge number of civil servants who have likely not slept since Friday. They have saved hundreds of the UK’s most innovative companies today.”

Silicon Valley Bank, which was the 16th largest lender in the US, collapsed and had its assets seized by US regulators on Friday after a tumultuous 48 hours. The lender had been trying to raise emergency funding to plug a near $2bn (£1.7bn) hole in its finances, after an increase in withdrawals from customers in the tech industry who had seen funding dry up in recent months.

The Bank of England subsequently ordered its UK subsidiary into insolvency on Friday night, putting firms at risk of losing almost all their cash. Only £85,000 of clients’ deposits would have been protected by the Financial Services Compensation Scheme, or £170,000 for joint accounts, meaning many of SVB UK’s customers were facing major losses without government intervention.

It came as the US announced its own emergency support package to stem the fallout from the collapse of Silicon Valley Bank last week. SVB’s customers will get access to all of their cash on Monday, in effect scrapping the $250,000 cap on their deposit protection. The deal was struck as regulators wound up the New York-based Signature Bank, one of the main banks for the crypto industry, whose depositors will also avoid losses.

Shareholders and some unsecured debt holders will all be wiped out and other banks will be forced to cover any shortfalls in the industry-funded scheme. US regulators are also offering a $25bn pot of cheap loans to other American banks, providing a backstop to lenders needing quick cash because of market instability.


Kalyeena Makortoff Banking correspondent

The GuardianTramp

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