HSBC Rescues SVB

HSBC has announced a rescue plan to buy the UK arm of Silicon Valley Bank (SVB), whose collapse left the tech sector in chaos and thousands of firms unable to access critical assets.

The banking behemoth had emerged as a potential ‘white knight’ bidder on Sunday evening as the government and regulators scrambled to prevent the demise of SVB. It paid just £1 for the collapsed bank's UK arm, which has a balance sheet of £8.8 billion. 

“[This acquisition] 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 U.K. and internationally,” HSBC CEO Noel Quinn said in a statement.

“SVB U.K. customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.”

Silicon Valley Bank, which specialised in lending to tech companies – was shut down by regulators on Friday in what was the largest failure of a US bank since 2008. 

The downfall sent shockwaves across the tech sector, putting around 200 UK tech companies “at serious” risk of bankruptcy. 

The bank of England confirmed in a statement that all depositors' money with SVB is now “safe and secure," assuring that the transaction did not involve any taxpayers' money.

British Chancellor Jeremy Hunt stressed that the deal “ensures customer deposits are protected and can bank as normal, with no taxpayer support.”

"The UK's tech sector is genuinely world-leading and of huge importance to the British economy, supporting hundreds of thousands of jobs. HSBC is Europe's largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them."

The financial bleed continues

Despite the HSBC deal in the UK and the US government’s promise to protect depositor funds, SVB’s downfall continues to cause financial bleeding across the globe. 

New-york based Signature Bank also collapsed on Sunday and was seized by regulators with more than $110 billion in assets, making it the third largest bank failure in US history. 

Meanwhile, in Asia, markets remained anxious as trading kicked off on Monday. Japan's benchmark Nikkei 225 fell 1.6 per cent in morning trading, while South Korea's Kospi sank 0.4 per cent. 

In an attempt to instil confidence in the banking system, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) reacted swiftly to concerns of contagion over the weekend, announcing that SVB Customers in the US would be protected and able to access their assets, including those whose holdings excess the $250,000 insurance limit. 

To read more about how the financial climate is impacting tech, visit our Business Agility Page.

The agencies also announced a number of measures to ensure the bank’s customers are protected from financial downfall, preventing additional bank runs. 

"This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth," the agencies assured in a joint statement.

While these measures will be a sigh of relief for tech companies, they also mark a new era in banking where bad investment behaviour comes without consequence. 

If US authorities guarantee that depositors will lose no money, they could remove customers’ incentive to be cautious with investments to guard themselves against financial risk. 

"This is a bailout and a major change of the way in which the US system was built and its incentives," Nicolas Veron, a senior fellow at the Peterson Institute for International Economics in Washington told Reuters. 

"The cost will be passed on to everyone who uses banking services. If all bank deposits are now insured, why do you need banks?"

“More banks will likely fail”

Regardless of the risks that come with the US government’s actions, experts say that the swift response may just be enough to prevent global financial catastrophe – for now. 

“If authorities had not intervened, we would have had a 1930s bank run continuing first thing Monday causing enormous economic damage and hardship to millions,” Billionaire hedge fund manager Bill Ackman tweeted. 

"More banks will likely fail despite the intervention, but we now have a clear roadmap for how the gov't will manage them."

Other experts, such as Nelson Wootton, Co-Founder and CEO of SaaScada, also note that SVB didn’t fail because it was a fintech bank. 

"Let’s be clear, this is not a ‘fintech bank gone wrong’ story. Larger institutions invest in bonds too and see returns in time once interest rates stabilise. But if rates go against you and investors get spooked, there’s not much anyone can do to stop a run on a bank of any size, Mr Wootton explained. 

“The reality is if SVB UK wasn’t a fintech bank it likely wouldn’t have been saved. It’s been inspiring to see how quickly the UK fintech community has rallied together to secure SVB UK and defend our fintech industry.

The US government's promise means that taxpayers have been protected from funding the measures — a  completely different story from the bank rescues during the 2008 financial crisis.

This story is still unfolding. Further updates will be posted as they happen.