Bank deal

Stocks plunge as SVB UK acquired by HSBC for £1

Andrew Bailey and SVB
Bank governor Andrew Bailey was in talks to rescue the bank

Shares in London tumbled today as the fall-out from the failure of technology lender Silicon Valley Bank (UK) continued to fray investors’ nerves.

The FTSE 100 fell by 200 points as the sale of the US bank’s UK subsidiary to HSBC for £1 failed to quell concerns of further technology bank failures.

The Treasury announced the deal with HSBC at 7am following frantic talks involving the Bank of England and the regulators. No taxpayer money is involved, and customer deposits have been protected.

“The UK has a world-leading tech sector, with a dynamic start-up and scale-up ecosystem and the government is pleased that a private sector purchaser has been found,” said the Treasury which used post-crisis banking reforms to protect the customers of SVB UK and taxpayers.

The Bank of England said action has been taken to stabilise SVBUK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system.

No other UK banks are directly materially affected by these actions, or by the resolution of SVBUK’s US parent bank. The wider UK banking system remains safe, sound, and well capitalised, it said.

Markets remain on alert

Traders in London initially gave a muted response to the deal, but the additional collapse of Signature Bank and fears that other specialist banks in the US could follow created tensions in the market and US authorities launched emergency measures to shore up confidence in the banking system.

There was concern that First Republic Bank would be the next to fall with shares in the bank down by almost 80% in early trading. Reports on Friday and over the weekend showed customers queuing around the block to withdraw money.

A report in the Wall Street Journal said that the bank has shored up its finances with additional funding from the Federal Reserve & JPMorgan Chase & Co.

Analysts at Deutsche Bank said: “SVB’s woes are a combination of one of the largest hiking  cycles in history, one of the most inverted curves in history, one of the biggest bubbles in tech in history bursting, and the runaway growth of private capital. The one missing ingredient not involved here is a US recession. “

Investors in London’s blue chip FTSE 100 index saw billions wiped off the value of stocks. The index closed 199.72 points (2.58%) lower at 7,548.63 as action taken by the authorities was not enough to halt fears of contagion.

The FTSE 100 today

Wall Street opened higher after US regulators stepped in to protect depositors at SVB and Signature Bank as its hoped the fall of the two tech-focused banks makes it less likely that the Federal Reserve will pursue a hawkish agenda on interest rates.

However, the realisation that regulatory action isn’t stopping the rot has led to sharp falls among the biggest banking names on Wall Street such as Wells Fargo down 7.5%, Citigroup down 6%, and Bank of America down 7%.

In London, banks were among the biggest fallers. Standard Chartered was down 6.7%, Barclays by 5.9% and NatWest by 4.8%.

Commenting after the sale of SVB UK had been announced, Chancellor Jeremy Hunt aded: “The UK’s tech sector is genuinely world-leading and of huge importance to the British economy, supporting hundreds of thousands of jobs.

Jeremy Hunt
Jeremy Hunt: we will look after our tech sector

“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.

“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.”

At least four Scottish companies were thought to have been affected by the collapse of the US bank and Scottish Enterprise was making attempts to contact them.

The BoE responded to the crisis late on Friday night by applying to place SVB UK into insolvency to protect eligible depositors under the Financial Services Compensation Scheme.

Silicon Valley Bank has a limited presence in the UK and does not perform functions critical to the financial system.

However, the Treasury issued a statement on Sunday morning saying the government and the Bank understood the level of concern that the situation raises for customers of SVB UK, and especially how it may impact on cashflow positions in the short term.

About 200 tech entrepreneurs and venture capitalists employing more than 10,000 people wrote to Mr Hunt on Saturday warning that they required urgent support or else they would collapse.

Gerard Grech, the chief executive of Tech Nation, the UK-wide network for digital entrepreneurs which was behind the development of Skyscanner, said SVB is especially “vital to that ecosystem”. He said it has been a critical partner to UK tech and supported many promising start-ups.

SVB, which funds the tech sector, has been hit by soaring inflation and rate hikes in the past 12 months, with tech firms suffering sharp valuation haircuts and VCs writing off billions of dollars of value from their portfolios.

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