Entrance to the Alphabeta Constructing, which houses the offices of the UK branch of Silicon Valley Bank, in the City of London, UK, on Monday, March 13, 2023. HSBC Holdings Plc is about to buy the UK branch of Silicon Valley Bank, the culmination of a crazy weekend where ministers and bankers explored various ways to avoid the collapse of the SVB unit.
Bloomberg | Bloomberg | Getty Images
LONDON – British startups breathe a sigh of relief on the Monday after HSBC announced it will buy a subsidiary of bankrupt U.S. tech startup lender Silicon Valley Bank.
“We will look our teams in the eye at 9 o’clock in our general talks, which was supposed to be quite hectic this morning, and say that not only will we have the option to pay our next payroll, but we will proceed operating as usual,” said Toby Mather, director CEO of London’s Lingumi teaching app, speaking to CNBC’s Squawk Box Europe.
His startup holds most of the money in SVB UK.
“I feel I speak for UK start-ups after we say it’s an enormous relief,” he said.
It comes after late-night tumultuous talks to save customer deposits after US regulators shut down SVB on Friday, shaking the financial world.
HSBC said it had agreed to acquire SVB UK for £1 ($1.21) and would protect deposits.
Brent Hoberman, executive chairman of start-up accelerator Founders Factory and co-founder of online firms lastminute.com and Made.com, said anything lower than a 100% deposit guarantee would have a major knock-on effect on UK tech and the deal was a “huge relief”.
“SVB UK has an honest balance sheet which has enabled HSBC to close this deal,” he told CNBC over the phone. “If it was terrible, it will have had to get government deposit insurance, however it wasn’t mandatory since it’s cost-effective.” SVB UK reported a pre-tax profit of £88m for 2022.
“We proceed to have a robust player in SVB that gives as many services as the founders want,” Hoberman said, adding that the combination of SVB UK and HSBC “if done right, may very well be a good more positive flywheel in the UK.”
SVB UK was due to enter insolvency following the collapse of its US parent company, prompting talks between the UK government, the Bank of England and others to prevent the crisis from spreading to the tech sector.
The heads of greater than 200 tech corporations wrote to the government on Saturday, calling for intervention.
“They’ve saved a whole bunch of the UK’s most revolutionary corporations today,” Dom Hallas, executive director of UK start-up association Coadec, said in an announcement.
He added that the government ought to be commended for appreciating the scale of the challenge.
Finance Minister Jeremy Hunt said in an announcement on Sunday that although SVB has a “limited presence” in the UK, the situation is of concern to all SVB UK customers and can affect short-term money flow positions.
According to HSBC, SVB UK has loans of around £5.5bn ($6.65bn) and deposits of around £6.7bn. Its parent company, SVB, has roughly $209 billion in total assets and $175.4 billion in total deposits.
Rescue deal
In a tweet on Monday, Hunt said the government and the Bank of England had “facilitated the private sale of Silicon Valley Bank UK to HSBC”, adding that “deposits shall be protected, with no support from taxpayers”.
The Bank of England added that SVB UK’s business “will proceed to operate as normal” and customers shouldn’t see any changes and may proceed to contact the bank through normal channels and repay their loans as normal. The bank stays authorized by the UK financial regulators.
Lingumi CEO Mather described HSBC’s bailout as a “splendid consequence”.
“For a bank, moving to a extremely big brand that has a whole bunch of years of history is one of the best results we could have had to feel like we will stick with the recent SVB that has been such a vital partner to the start-up ecosystem here and in the US for a long time ” – he said.
When asked why his startup didn’t start a bank with a much bigger name like HSBC, he said: “Once you’re a small start-up, you are in search of a bank that understands the unique nature of what you do, which is raising capital from investors, which you then put into research and development. development, sometimes for several years before the first revenues appear.
“Big banks, equivalent to HSBC, have often not offered products that actually suit start-ups until now. SVB has all the time been really good at that,” he said.
The collapse of SVB is the second-largest bank failure in US history, and on Monday, fears of the spread of the virus dragged shares of international banks down.
The bank has been in operation for 40 years, but some of its essential assets, including US Treasury bonds and government-backed mortgage securities, have been hit by US rate of interest hikes.
It was pushed to a breaking point last week when it announced it needed to raise $2.25 billion to meet customer needs and finance recent loans. Its share price plunged and the news sparked panic amongst VC investors and other depositors.
The European Commission said on Monday that it was monitoring the situation.