HSBC buys UK arm of collapsed Silicon Valley Bank
US Correspondent Dan Rivers reports on the second biggest bank collapse in US history
The UK arm of collapsed US lender Silicon Valley Bank (SVB) has been bought by HSBC after the government and Bank of England stepped in to “facilitate” a private sale.
Chancellor Jeremy Hunt confirmed that all customer deposits have been protected under the deal, with no taxpayer cash involved. HSBC said it had acquired the UK subsidiary of SVB for the nominal sum of £1.
It comes after the US government moved to stop a potential banking crisis after the historic failure of SVB, with all deposits protected, amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.
Mr Hunt said: “Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK. This ensures customer deposits are protected and can bank as normal, with no taxpayer support.
“I am pleased we have reached a resolution in such short order.
“HSBC is Europe’s largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them.
As ITV News UK Editor Paul Brand notes, the move will be welcomed by many in the tech sector and will be a boost for the government's economic credibility after the market turmoil caused by Liz Truss' mini-budget last year.
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 is “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.
“We are continuing to monitor the situation and will analyse the details as they emerge later.”
The 16th-largest bank in America, SVB largely served technology start-up companies, venture capital firms, and well-paid technology workers.
Because of this, the vast majority of the deposits at SVB were in business accounts with balances significantly above the insured $250,000 (£206,290) limit.
Its failure has already caused more than $150 billion (£123,772,500) in deposits to be now locked up in receivership, which means start-ups and other businesses may not be able to get to their money for a long time.
Why did Silicon Valley Bank collapse?
SVB was hit hard in the US as stocks in technology fell in value over the last year. This, teamed with the Federal Reserve's aggressive plan to increase interest rates to combat inflation, caused the bank to crash.
The bank bought billions of dollars worth of bonds over the past couple of years, using customers' deposits - as a bank normally would.
This is usually a safe thing to do. But the value of those investments fell because they paid lower interest rates than what a comparable bond would pay if issued in today's higher interest rate environment.
Typically that's not an issue, because banks hold onto those for a long time — unless they have to sell them in an emergency.
But Silicon Valley's customers were largely start-ups and other tech-centric companies.
The companies struggled to get extra funding so customers started withdrawing their Silicon Valley deposits.
HSBC and the Treasury said customers of SVB UK will be able to access their deposits and banking services as normal following the sale to HSBC. The bank's first branch to open outside the US was in Shoreditch, London.
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 PRA, the position was not recoverable”.
“Therefore, the Bank of England decided, in consultation with HM Treasury, the Prudential Regulation Authority and the Financial Conduct Authority, to use the resolution powers for stabilising failing banks that were brought in following the financial crisis,” it added.
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.
“Customers can continue to contact SVB UK through the usual channels and borrowers should make any loan repayments to SVB UK as normal,” it said.
The wider UK banking system “remains safe, sound, and well capitalised”, the Bank added.
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