HSBC has bought collapsed lender Silicon Valley Bank’s UK arm for a nominal £1 in a private sale facilitated by the government and the Bank of England.
The Bank of England announced on Friday that Silicon Valley Bank UK was entering insolvency, following the collapse of its parent company in the United States – the largest failure of a bank since the 2008 financial crisis.
The unfolding crisis over the weekend led to chancellor Jeremy Hunt to warn that hundreds of UK tech firms were seriously at risk after the lender’s collapse, and frantic talks continued into the night on Sunday.
The US government had moved to stop a potential banking crisis after the historic failure of Silicon Valley Bank, with all deposits protected, amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.
Early on Monday, HSBC announced it would be buying the lender’s UK arm - with Mr Hunt saying the rescue deal would ensure deposits are protected and that no taxpayer support would be involved.
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
Mr Hunt said: “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.”
Mr Hunt told broadcasters that the UK’s banking system is “resilient”, amid concerns sparked by the collapse of Silicon Valley Bank.
The chancellor told broadcasters: “We always have to watch everything that’s happening everywhere in the world when it comes to financial stability.
“But what I would say is the Bank of England is very clear – the UK banking system is extremely secure, it’s well capitalised. And I think we demonstrated that resilience by what was happening over the weekend and the fact that we were able to come up with a solution so quickly.”
A statement from HSBC chief executive Noel Quinn added that the acquisition makes "excellent strategic sense" while top Tory Tom Tugendhat hailed the move as a “great deal”.
SVB UK bought by @HSBC is a great deal for:
1. 🇬🇧 tech - avoiding disruption.
2. 🇬🇧 taxpayers - it costs us nothing and backs ideas, jobs and future taxes.
3. @HSBC_UK shareholders - it opens an important sector of the economy to them.
Well done @hmtreasury
— Tom Tugendhat (@TomTugendhat) March 13, 2023
However, the Bank of London - a UK clearing bank that had also put forward a rescue bid for SVB UK - criticised the sale to HSBC as a "missed opportunity".
It said: “For many, this will be seen as a missed opportunity to support competition and innovation.
“It cannot be right that once again the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position.
“Britain needs better. For our part, we at The Bank of London stand ready to serve the entrepreneurial community of the UK.”
Silicon Valley Bank was the 16th largest bank in the US until last week and worth more than $200 billion.
Based in California’s tech hubris, the bank played a key role in backing startups during the pandemic which then led to a large number of deposits being made - which the bank then invested in government bonds. While these appeared safe, they came a cropper when interest rates rose which caused the bond share price to fall and the bank’s portfolio then began to lose value.
Regulators had to rush to close Silicon Valley Bank on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once.
President Joe Biden said on Sunday evening as he boarded Air Force One back to Washington that he would speak about the bank situation on Monday.
In a statement, Mr Biden also said he was "firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again".
Some prominent Silicon Valley executives feared that if Washington didn't rescue the failed bank, customers would make runs on other financial institutions in the coming days.
Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.
Among the bank's customers are a range of companies from California's wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change.