Failed Silicon Valley Bank (SVB) UK has been sold to HSBC for £1 in a major reprieve for the UK's tech startups who faced losing their deposits (over the insured threshold) after its parent company collapsed.
"Customers of SVB UK will be able to access their deposits and banking services as normal from today" the Treasury said: "No taxpayer money is involved and customer deposits have been protected."
As the largest lender to VC firms and founders, SVB's assets are attractive for banks hoping to gain market share in venture and venture debt, Zack Ellison, CIO of Applied Real Intelligence, a venture debt firm, had emphasised late last week as regulators scrambled to find a solution to the bank's abrupt failure on Friday.
Late Sunday in the US meanwhile The Treasury Department, Federal Deposit Insurance Corp (FDIC) and the Federal Reserve, citing "systemic risk" under which the agencies can take extraordinary actions, also said regulators' insurance funds will be used to protect depositors in order to avoid systemic risk.
"Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority" said the Fed. "All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer. Shareholders and certain unsecured debtholders will not be protected.
"Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors" it added late Sunday.
Silicon Valley Bank UK sold to HSBC: Private sale, no taxpayer support
Chancellor Jeremy Hunt said early Monday, after a weekend of intensive discussions: “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.
"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" the Chancellor added.
The deal comes as startups had feared that they would be unable to meet payroll with deposits inaccessible. Some in the same position in the US had scrambled over the weekend to take emergency steps to access cash including bridging loans to avoid the impact on employees and suppliers of being unable to make payments.
Snehal Antani CEO of cybersecurity company Horizon3.ai said over the weekend: "I was lucky to have acces to cash and immediately loaned $1M of my personal money Friday AM to make payroll while we wait for the FDIC to sort out our deposits. No furlough, no missed mortgage payments by my teammates..."
"Most founders are not in the position to lend money to their startups and I feel for them right know. Your life’s work that required you sacrifice your mental health and family life is suddenly at risk because a former Lehman Brothers exec went all-in on mortgages at the wrong time (again!)" he added, emphasising that the concentration of finances in SVB was a bank policy that had had a real whiplash effect on startups.
"As he put it: "SVB *required* startups consolidate all of their deposits and credit cards to SVB in order to get [a line of credit 'LOC']... Because SVB required deposits consolidation, many companies did not have another corporate bank account open, so when founders decided to pull their deposits Wednesday or Thursday, they had to first open up a bank account, which can take 24-36 hours due to KYC checks- by the time new accounts were open, California had stepped in and taken over the bank, shutting down all wires..."
(LOCs had become increasingly popular for tech startups looking for cash and not wanting to fundraise and take a huge dilution hit in the wake of a market slump triggered by the rise in interest rates.)
More to follow.