The California-based Silicon Valley Bank (SVB) has collapsed in the largest bank failure since 2008, prompting HSBC to purchase the bank’s UK arm for just £1 in a scramble to shield UK tech firms from the fallout.
The collapse of SVB – which mostly catered to startups, venture capitalists, and others in the US technology ecosystem – started on 8 March 2023, when its parent company announced it had sold $21bn of worth of securities from its portfolio at a loss of $1.8bn, and would sell a further $2.25bn in new shares to shore up its finances, in the face of rapidly increasing interest rates.
This prompted customers to start withdrawing money en masse, leading to regulators shutting the bank down two days later on 10 March.
The Bank of England subsequently ordered SVB’s UK subsidiary into insolvency the same night, putting UK tech firms at risk of losing almost all their cash.
The following day, more than 200 UK tech firm bosses wrote an open letter to the HM Treasury calling for immediate government intervention
“The firms affected by the collapse of SVB serve millions of people in the UK along with businesses that are critical to our economy,” it said. “The cost of inaction here means that these firms could fail in the short term and your technology growth ambitions will fail in the long term.”
In a statement published 12 March, HM Treasury said it was treating SVB’s sudden collapse as a “high priority”, and that it was “working at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK, and we will bring forward immediate plans to ensure the short-term operational and cashflow needs of Silicon Valley Bank UK customers are able to be met.”
To protect the finances of SVB UK’s roughly 3,500 customers, the UK government ended up striking a last-minute deal with the Bank of England later that night to facilitate the private sale of the UK branch to HSBC, which said it paid just £1.
“The UK’s tech sector is genuinely world-leading and of huge importance to the British economy, supporting hundreds of thousands of jobs. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver on that promise and find a solution that will provide SVB UK’s customers with confidence,” said chancellor Jeremy Hunt.
“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.”
Dom Hallas, executive director of 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…there are hundreds of founders around the country who will thank you for your work.”
TechUK CEO Julian David added that without the rescue purchase by HSBC, many UK startups would have been unable to access their deposits, in turn leaving many to face insolvency themselves.
“It has been a turbulent time for UK tech after a difficult economic backdrop throughout 2022 with companies facing many adjustments to business models. But it also remains a place of opportunity and as the engine of growth for the UK it has the ability to address the challenges we face in the UK,” he said.
“So, it is extremely encouraging to see, right from the top of government including the PM and the chancellor as well as our own new Science and Technology Department, this commitment to tech and our companies and to see them demonstrate the speed we need to enable becoming the science and tech superpower that we all want.”
Rob Cossins, CEO of AI-powered data platform Scribe, added that HSBC’s purchase of SVB UK was “an excellent outcome” for the UK tech sector: “UK technology companies were faced with existential risk, so I’m glad that all the relevant stakeholders appreciated the importance of protecting deposit-holders in the UK's most innovative sector. Founders that were looking unable to pay wage bills this week are now protected and thousands of jobs have been saved.”
Jukka Väänänen, CEO of free PR platform Newspage, which is being used by UK startups to gain visibility in lieu of expensive marketing budgets and agencies, said that while the crisis appears to be averted for now, there will be other tech banks affected by interest rate hikes.
“Questions are once again being raised about risk management in the banking sector,” said Väänänen. “SVB’s collapse will have upped the fear quotient among tech and startup companies, and fear inhibits growth, [and growth] is what the economy needs desperately right now.”
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