Silicon Valley Bank UK collapse and HSBC Rescue – what you need to know

Following a dramatic 48 hours, HSBC has struck a last-minute deal with the Bank of England (BoE) to purchase the collapsed Silicon Valley Bank UK for a nominal price of £1.

Its intervention prevents the bank being placed into insolvency, and will save thousands of UK tech startups from potentially fatal losses.

Silicon Valley Bank UK (SVBUK) had been on the edge of catastrophe following the sudden collapse of its US parent company on Friday, but the government wasted little time in responding.

In an extraordinary series of events over the weekend, the UK government stepped in ahead of the opening of Monday morning’s markets to meet with potential bidders to take over the collapsed lender.

We explain what happened, what the response has been, and what the potential impact could be for the UK’s startups scene.

SVBUK purchased by HSBC

Silicon Valley Bank (SVB) was the sixteenth largest bank in the US. Last Friday, it failed after a run on the bank saw clients speeding to withdraw their cash due to concerns over its poor balance sheets.

Working as part of an extraordinary rescue mission, the UK government raced to hold numerous emergency meetings to minimise disruption to tech firms, whose cash flows had been left hanging in the balance.

In the early hours of this morning, the BoE announced that HSBC had emerged as the triumphant white knight in what was apparently a competitive bidding process.

Chief executive Noel Quinn confirmed that HSBC has purchased SVBUK for a nominal price of £1. The takeover will override the BoE’s earlier decision to place SVBUK into insolvency.

As a result of the transaction, all depositors’ money with SVBUK is now safe and fully accessible. Customers should not notice any changes.

Chancellor Jeremy Hunt wrote on Twitter at 7am: “I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.”

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

— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023

In a statement released on Monday, the BoE said the action had been taken “to stabilise SVB UK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system”.

SVBUK government intervention

It’s been a heck of a weekend for the chancellor, who may have been hoping for a quiet couple of days ahead of the spring budget announcement. On Saturday morning, Hunt reacted to a letter sent to the government by 250 UK tech CEOs, who had been left in the dark about what SVBUK’s collapse would mean for their businesses.

Hunt moved quickly to reassure the estimated 3,5000 SBUK customers that the government would act urgently to provide a cash lifeline to all tech startups affected by the bank’s collapse.

Overnight meetings were held between Hunt, prime minister Rishi Sunak, and BoE governor Andrew Bailey to find a solution to the chaos.

It is understood that ministers from the government’s newly-formed innovation department, DSIT had also been speaking to sector leaders and startup representatives to decide on a rescue approach.

On Sunday, it became clear that the government wanted to avoid the bank being placed into insolvency by selling it to a UK rival. Various parties were apparently interested, but HSBC was announced as the successful buyer this morning.

At 8am, George Freeman MP, Minister for Science, Research, Technology & Innovation at DSIT, posted his thanks to all those who had been involved in the talks, declaring simply: “we’ve delivered.”

After a busy weekend Government & the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC:

🔹deposits will be protected, with no taxpayer support.@Jeremy_Hunt + @RishiSunak pledged HMG would act to stop a UK S+T sector crisis.

We’ve delivered. https://t.co/HueZZ5IK5n

— George Freeman MP (@GeorgeFreemanMP) March 13, 2023

Cashflow liquidity to maintain staff payments

Following the news of its parent company’s collapse, the BoE announced its intention to put the UK arm, SVBUK, into insolvency as soon as Sunday evening.

Under the UK’s deposit protection scheme, customers of an insolvent bank are eligible for up to £85,000 of compensation for cash (£170,000 for joint accounts). Startups using SVBUK would not have been able to recover more than these amounts – which are small compared to the deposits that some had with the bank.

However, the most imminent threat to owners was not just losing their deposits, but accessing them.

Had SVBUK been made insolvent, its customers would have been left unable to move money in and out of their accounts for 30 days. Being blocked from making staff and supplier payments could have signalled a potential extinction event for thousands of firms.

Chancellor Jeremy Hunt acknowledged there was “a serious risk” that SVBUK customers, who he described as “some of our most promising and exciting businesses”, would not be able to settle payroll and bills this week.

In a statement published online, the Treasury said “given the importance of Silicon Valley Bank to its customers, its failure could have a significant impact on the liquidity of the tech ecosystem.

“The government recognises that tech sector companies are often not cash flow positive as they grow, and that they rely on cash on deposits to cover their day to day costs.”

Spring budget incoming

The government’s quick response to the crisis indicates it was aware of the devastating consequences that the bank’s collapse could have had on UK startups.

Even with Wednesday’s Spring Statement just days away, HM Treasury reacted swiftly to begin meeting with potential buyers and organise a takeover almost overnight.

Startup owners should feel reassured that the chancellor’s March Budget will likely contain further details on how HSBC’s takeover will work, and any further support that may be made available.

What could be the potential impact on UK startups?

SVB’s collapse is the biggest bank failure since the 2008 financial crisis. But while SMEs could rest assured that the SVB emergency would not blight the UK’s financial system this time round, tech startups were rightfully worried about ripple effects in the sector.

Bank of England reads the room wrong

Criticisms were levelled at the Bank of England’s statement on Friday evening, which declared that “SVBUK has a limited presence in the UK and no critical functions supporting the financial system.”

That the government’s first move was to reassure the banking sector, rather than the organisations affected by the disaster, showed a severe lapse in judgement. Entrepreneurs were equally unimpressed.

In a letter sent to the chancellor on Saturday morning, 250 tech startup CEOs said: “Most businesses are operating on very fine margins in the current economy and the contagion from the initial insolvencies will be vast and impact the economy far beyond the tech sector.”

Ripple effect potential for startup sector

While SVBUK had an estimated 3,500 customers, data from the Office of National Statistics (ONS) shows that its primary client base of professional, scientific, and technical businesses is the largest industry group of all businesses in the UK. These firms make up 15.6% of all registered businesses.

Consequently, sources reported by the BBC have estimated that between 30% and 40% of UK startups could have been affected by the collapse – including up to 50,000 employees.

Based on the name, some might mistake Silicon Valley UK for a far-removed lender that served more as a branding tool for clients. But the bank was a rare backer of many successful, high-growth startups like Wise – themselves a key driver for economic growth.

Shadow chancellor Rachel Reeves, posted on Twitter at 7:45am this morning to recognise the importance of the deal, stating that “tech and life sciences are vital to getting our economy growing again.”

That SVB has a buyer will be a relief to the entrepreneurs and the thousands of people working in the tech and start-up sectors, who woke up facing huge uncertainty this morning.

Tech and life sciences are vital to getting our economy growing again.https://t.co/zvDrIodv3U

— Rachel Reeves (@RachelReevesMP) March 13, 2023

Caution should be exercised alongside any celebrations, however. While the takeover is welcome news for existing customers, SVBUK’s downfall will do little to curb investor anxieties.

Funding in the tech sector has already slowed in recent months, leading to mass layoffs. A considerable number of venture capitalists also banked with SVBUK. Should they choose to discontinue their working relationship with HSBC, future fast-growing businesses will struggle to keep the momentum going.

One hope is that the crisis makes central banks less willing to raise interest rates higher, which should calm market nerves and help to prevent a repeat disaster like SBVUK. The BoE has repeatedly raised the rate to try and combat inflation. Currently, it is set at 4%.

Timeline of the SVBUK collapse and response

SVB is the most high-profile company to fall victim to a wider trend of lost investor appetites. High interest rates in both the US and the UK have been deterring backers from making ‘riskier’ investments.

This drastically curbed the amount of early-stage funding being given to SVB’s primary customer base, setting SVBUK up for a crushing fall at the end of last week. Here’s a day-by-day breakdown of what unfolded:

Wednesday 08 March

Short on capital, and with private fundraising becoming unaffordable, SVB’s customers begin withdrawing large amounts of money from the bank at the beginning of the week.

To fund the redemptions, SVB sells a $21bn bond portfolio. However, hiked interest rates over the last year have pushed up the yield on bonds, which lowers their price. The bank sells at a $1.8bn loss.

Thursday 09 March

SVB announces it will sell $2.25bn in common equity and preferred convertible stock to cover the loss. This spooks investors and causes the bank’s shares to plummet by 60%.

At the same time, SVBUK continues to insist that everything is fine. Erin Platts, CEO and Head of EMEA, issues a press release on Thursday morning in an attempt to reassure investors of its strong financial position “as a standalone independent banking institution.”

Friday 10 March

SVB scrambles to find alternative funding, including searching for a buyer. It’s too late. US regulators announce they are shutting down the bank and placing it under its receivership.

Later on Friday, the BoE publishes a statement that it is seeking a court order to wind up Silicon Valley Bank UK Limited and place it into an insolvency procedure.

Saturday 11 March

Reuters reports that 250 UK tech firm executives have signed a letter addressed to Hunt calling for government intervention and warning of an “existential threat” to the UK tech sector.

The chancellor responds by organising an emergency meeting with the BoE, tech firms, and the prime minister. He promises to secure an emergency support package for startups in the tech and life sciences sectors, to protect from major losses and potential failures.

Sunday 12 March

In a statement on Sunday morning, Hunt says that the government will “bring forward plans to ensure the short-term operational and cash flow needs of Silicon Valley Bank UK customers are able to be met.”

That evening, various potential buyers begin throwing their hat into the ring to rescue SVBUK including HSBC and Lloyds.

The Evening Standard speculates that Barclays – the bank that was previously awarded Tech Nation’s funding last September – is a frontrunner. Meanwhile, Bank of London announces it has submitted a formal offer to the SVBUK board.

Monday 13 March

Tech startups awake to find that HSBC has swooped in at the last minute as part of an extraordinary rescue deal facilitated by the government. It purchases the bank for £1.

HSBC’s Noel Quinn says: “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.”

Were you affected by the SVBUK collapse? Email us at hello@startups.co.uk or contact us on our social media pages to add your voice to the conversation.