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British tech firms have been saved from possible bankruptcy as HSBC acquired the UK arm of collapsed Silicon Valley Bank (SVB).
The Bank of England and the government worked through the night to secure a rescue deal involving no taxpayer money. SVB specialised in lending to start-ups and was under pressure as higher interest rates made it harder for its customers to raise money through private fundraising or share sales. Its collapse sent shockwaves across the tech industry over the possible impact it could have on businesses, with some firms saying they could go bust if deposits were not secured. HSBC paid just £1 for the SVB's UK arm, which had over 3,000 business customers. Although its US parent was in financial trouble, Silicon Valley Bank UK was in reasonable financial health when it was bought.
HSBC has acquired the UK arm of Silicon Valley Bank (SVB) for just £1, after the lender collapsed following US regulatory issues. The bank specialised in lending to technology firms, and its UK arm was thought to have just over 3,000 business customers. The move follows frantic negotiations between HSBC, the Bank of England, and the UK government, with concerns over the potential collapse of smaller UK tech firms due to their ties with SVB UK. Speaking about the deal, Toby Mather, CEO and co-founder of education tech start-up Lingumi, which had 85% of its funds tied up with the bank, said that while he had been "anxious" over the weekend, the purchase was a "huge relief."
Although the collapse of the bank's US parent had put SVB UK at risk, the latter was thought to be in reasonable financial health at the time of its purchase by HSBC. According to Bank of England sources, the deal was more of a preventive strike before the collapse of the US arm resulted in mass withdrawals from the UK business. Nevertheless, the move has been widely welcomed by the sector, with Sebastian Weidt, CEO of tech firm Universal Quantum, describing it as a "huge relief" after an "unbelievably stressful" weekend.
Silicon Valley Bank is the largest bank to fail in the US since 2008, with its US parent collapsing due to issues including higher interest rates that led to losses from the sale of assets, mainly US government bonds. All depositors have been protected under a rescue deal agreed by the US.
The collapse of SVB came as a result of higher interest rates, which made it more difficult for the bank's clients to raise money through private funding or share sales. The bank's collapse caused shockwaves in the tech sector, with more than 200 tech bosses signing a letter addressed to Chancellor Jeremy Hunt, calling on the government to intervene. A source in one tech firm told the BBC that between 30% and 40% of UK start-ups employing up to 50,000 people could have been affected by the collapse.
HSBC's purchase of SVB UK is risky. While the latter was small, its collapse could have been disastrous for the UK's tech industry. Moreover, although the UK arm of SVB was making reasonable profits and had adequate capital, the wider banking industry remains "unsafe, unsound, and well capitalised," according to Bank of England sources. Regulators were confident that HSBC could take on any additional risk posed by the SVB UK customer base, but concerns remain over the potential for similar collapses in the future.
While the HSBC purchase of SVB UK has been widely welcomed, the Bank of London has criticised the move, describing it as a "missed opportunity." The UK clearing bank was among the firms involved in early-stage talks and had submitted a rescue bid for SVB UK. The Bank of London said that "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."
HSBC's purchase of SVB UK for just £1 has brought relief to UK tech firms and their customers, who were facing the prospect of mass withdrawals after the bank's collapse. However, concerns remain over the potential for similar collapses in the future and the safety of the wider banking industry. Despite the relief brought by HSBC's acquisition of the UK arm of Silicon Valley Bank, many tech entrepreneurs have voiced concerns that the failure of a bank specialising in funding the technology industry could be indicative of the sector's fragile nature. In the UK, the technology industry is viewed as pivotal to future economic success, and the fear of its collapse highlighted the importance of taking preventative measures to safeguard against the risk of failure. With many banks sustaining losses on their investments in government bonds, investors have been left jittery and concerned about the true level of risk posed by banks.
Bhumesh is the Managing Partner of Corp Comm Legal, an Indian law firm. He is ranked among the Top 100 Indian corporate lawyers. He is advising domestic and foreign companies on M&A, joint ventures, corporate - commercial issues. Besides, he has written a book on Drafting of Commercial Agreements, has a couple of books in pipeline and trains students and professionals on Drafting Skills and corporate laws. He writes regularly on legal, business & other issues and is a guest faculty lecturer with educational institutes. Bhumesh holds a Bachelor of Laws (LLB) from the University of Delhi and a further qualification in International Law and Legal Studies from College of Law, York.
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