Silicon Valley Bank UK was put into insolvency last night – with expectations that government would step in before Monday’s market open now looking more unlikely.
The bank’s accounts are effectively frozen, meaning that firms will be unable to access their deposits – possibly leaving them unable to pay bills or salaries.
SVB UK’s parent firm in the US has been hit by a bank run, with a host of venture capitalists and depositors pulling cash out following a badly managed cash call in the middle of last week. Sources in the US also suggest that SVB’s management made risky investments in long-term mortgage backed securities, which took a pummelling when interest rates rose.
The collapse of Silicon Valley Bank UK (SVBUK) poses a “serious risk” to the UK’s tech and life sciences sectors, Chancellor Jeremy Hunt has warned.
Ministers have said urgent plans to protect businesses from the fallout are being drawn up. SVB UK has around 3,300 customers – but they are mostly in the innovation and tech sector.
Last night Treasury officials and Bank of England staff were working on a plan for SVB UK and the tech firms who may not have access to funds this morning.
Prime Minister Rishi Sunak promised overnight on a trip to San Diego that a solution was on the way “soon.”
Groups including Coadec, the Coalition for a Digital Economy, had been calling for a market update before Monday morning – but that is yet to emerge.
WHAT’S HAPPENING NOW?
Treasury and Bank of England officials have been in constant communication over the weekend, with a host of options being considered. Many were expecting an announcement overnight – but nothing has so far emerged.
One option is a sale of the bank, which would be the cleanest and easiest way for the Treasury to deal with the bank’s imminent collapse.
City A.M. also understands that the Treasury is also working on a deposit guarantee scheme with the British Business Bank.
WHO MIGHT BUY IT?
Four names have surfaced today; Sky News’ Mark Kleinman has reported that Oaknorth Bank could be interested in purchasing, and Bloomberg has named the Royal Group – an investment fund run by an Abu Dhabi royal – as also mulling an offer.
Others in the frame are Barclays and start-up The Bank of London, the latter of whom have made a formal bid.
HSBC also emerged last night as being potentially in the running.
WHAT HAPPENS ON MONDAY MORNING?
Bank stocks were bruised at the back end of last week, with some cautious investors fearing that Silicon Valley Bank’s collapse in the USA could be symptomatic of wider risks in the sector.
Most analysts expect that sell-off to continue this week.
WHAT CAN TECH FIRMS DO?
If the Bank of England, as expected, puts SVB UK into insolvency, customers would receive up to £85,000-worth of their deposits as part of the deposit guarantee scheme. Anything above that would be distributed by creditors.
There is also the risk that a buyer cannot be found – which would leave many tech firms losing their uninsured cash over the £85,000 limit – though this is thought to be unlikely.
COULD THE GOVERNMENT STEP IN?
It doesn’t appear that there’s any desire for a ‘bailout’ of SVB – as a casualty of the US parent firm’s failing, a bailout isn’t really the obvious move anyway.
What SVB UK needs is somebody to step in and allow the Bank of England to give SVB UK’s customers the power to move money in and out of their accounts, all the while avoiding a collapse in confidence triggering a further bank run this side of the Atlantic.
WHAT’S HAPPENED IN THE STATES?
Janet Yellen, the Treasury secretary, announced last night that a deposit guarantee scheme would be initiated whilst they search for a buyer for the US parent firm.