The 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 the 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.
The acquisition – which only 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. 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 chancellor, Jeremy Hunt, said on Twitter.
The HSBC chief executive, Noel 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 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 tech and life sciences sector were at “serious risk” as a result of the bank’s collapse.
The Treasury had summoned investors and industry lobby groups for an emergency meeting on Saturday, as they tried to gauge the severity of SVB crisis.
Dom Hallas, the executive director of the startup lobby group Codec, 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 have 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, effectively 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 due to market instability.