HSBC has come to the rescue of Silicon Valley Bank UK (SVB UK), a business that holds the assets and payroll of many British tech start-ups. The Chancellor said the eleventh-hour deal would support “hundreds of thousands of jobs”.
HSBC acquired the troubled bank for just £1 after negotiations involving the government and regulators. Without this, SVB UK would have been put into insolvency, potentially risking thousands of redundancies at UK start-ups whose money is held by the bank.
After the economic crisis in 2008, the government introduced legislation to safely manage the failure of banks, protecting customers and taxpayers.
Chancellor Jeremy Hunt said he was pleased a resolution had been reached so quickly. The transaction secures deposits of more than 3,000 customers, worth £6.7bn.
Before the deal had been announced, Hunt had hinted there might be a “serious risk” to tech and life sciences companies if they were unable to pay wages and bills after the bank’s collapse.
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“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,” he said.
In the US, financial regulators shut down the SVB parent business at the weekend and took control of its deposits. It has been described as the largest US bank failure since Washington Mutual in 2008, which had $307 billion in assets.
HSBC chief executive Noel Quinn said: “This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.”
It’s thought that SVB had invested a large portion of deposits from tech companies in US bonds, including those backed by mortgages – but these had been affected by high interest rate rises in recent months, so its portfolio plummeted in value.
At the same time, many tech companies’ fortunes have been on a downward trend this year with a number of big names making redundancies, so customers started drawing down their deposits fearful of losing more.
Without the intervention from HSBC, thousands of companies may have worried about making payroll for this week’s 15 March deadline, said Matthew Kim, CEO and founder of insurance technology company SureCo.
Faced with threats like these, companies can do a number of things to protect cashflow, including reconsidering working arrangements. “If you’ve recently brought employees back into the office, think about rolling back those changes. Even if you can’t get out of a lease, you’ll be able to save on electricity, office supplies, cleaning fees, and more by having fewer people in the office,” he suggested.
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