HSBC steps in to buy UK arm of bank favoured by start ups

HSBC has become the designated rescuer of Silicon Valley Bank UK – which currently supports over 3,000 startups – following the rapid collapse of its Californian parent on Friday.

US-based Silicon Valley Bank – which specialised in banking for tech startups – fell within 48 hours after a mass draw down was sparked by the announcement that it had sold some assets at a loss and would need to sell billions in new shares to shore up its balance sheet.

SVB’s troubles started as the US Federal Reserve raised interest rates to curb inflation. This led to a drop in tech stocks and erosion in the value of long-term bonds that SVB and others had been investing in during the era of ultra-low rates on offer during the pandemic.

The situation led to some key VCs advising startups to withdraw their cash from the bank, which they did in their droves until regulators stepped in to shut the bank down on Friday, placing it into receivership.

The knock-on impact on SVB’s UK arm sparked fears it could lead to the collapse of many smaller UK tech firms – as around 3,300 were clients. This led to more than 200 tech bosses signing a letter addressed to the UK Chancellor Jeremy Hunt calling for the government to step in.

A fraught weekend followed, with government, regulators and prospective buyers working through the night to scramble together a rescue deal involving no taxpayer money

According to the Financial Times, other buyers in the frame included an anonymous Middle Eastern bidder and two British banks: the Bank of London and OakNorth.

Following the all night talks led by the UK Prime Minister Rishi Sunak and the Bank of England, HSBC was selected (perhaps due to its strength and size) – handing over one symbolic pound to acquire the business.

HSBC said that the acquisition made strategic sense, adding that it expected to make a profit from the deal, regarding its newly-acquired customers as a boost to its UK business, which it’s trying to expand.

HSBC’s chief executive Noel Quinn added in a statement: “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.

“We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC. We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them.”

Following the deal, which was announced earlier this morning, Hunt tweeted: “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.”

While the industry – including the boss of UK start up funder Tech Nation (which is due to be wound down this month) – has been broadly supportive of the move, the Bank of London – a UK clearing bank – said in statement that HSBC’s selection signalled a “missed opportunity.”

“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.”