SVB collapse: HSBC buys the UK unit for £1 and US authorities will guarantee all customer deposits
It was announced on Friday that Silicon Valley Bank (SVB), the 16th largest bank in the US, worth nearly $200bn, had collapsed. All branches were shut and all deposits, 96% of which had not been insured, were then frozen. The groups holdings had been hit with the Fed's interest rate hikes, leading to depositors withdrawing their funds. SVB then tried to raise $1.75bn in capital funding to plug the hole caused by the sale of the bank's loss-making bond portfolio. SVB had been the go-to bank for the tech, biotech start-ups and venture capital specialists, catering to the financial needs of these companies around the world and was therefore the preferred banker to the tech sector.
The collapse now has significant financial implications for the global tech community. SVB was a major provider of financing to tech startups and venture capital firms and now its collapse may well disrupt the flow of capital to the tech industry, which might lead to a slowdown in innovation and growth in the global tech sector.
Now that HSBC has bought the UK arm of SVB for just £1, at least, for the moment, the panic that set in on Friday for its UK customers, has now eased. It was estimated that up to 100,000 tech jobs would be at risk if the bank was allowed to fail in the UK and deposits held by its UK customers were frozen. Even with the news of HBSC's purchase, the FTSE has been edging downwards due to continued uncertainty in the global financial markets, with other banks now under close scrutiny from the financial authorities.
SVB was a critical supporter to the growth of the tech industry by providing a range of financial services, including venture debt, lines of credit, and banking services to mainly its tech sector customers. With a significant presence in Silicon Valley, many emerging tech companies had relied on SVB to secure funding and manage their finances.
What happens now after the collapse of SVB, has made every tech company uneasy, as the extent of the fall-out and the ripple-effect on the sector, is only just now being calculated. The UK side of the bank has been saved and deposits accessible again, but we now have to wait to see what President Biden will announce later today, as to the fate of SVB in the US and whether the US Treasury with bail out the bank.
The unsettling financial week started on Wednesday with the announcement that Silvergate Capital Corp, a bank supporting the innovative fintech and cryptocurrency sector, would begin it's voluntary liquidation to meet its liabilities and that then caused Silvergate's stock to fall another 50%. SCC's stock was already down 94% over the last 6 months, due to the crypto price falls and the bankruptcy of FTX.
The collapse of Silvergate and then SVB not long after the fall in FTX, has done nothing to lessen the anxiety in the entire tech sector as regards to its financing, with many tech companies relying on SVB to hold substantial cash deposits. It is now a waiting game.
As Wall Street opens this week, First Republic Bank is already down 67%.