The UK tech sector may be taking it easy tonight after the UK arm of Silicon Valley Bank (SVB) was sold to HSBC for just £1.
The intervention followed the collapse last week of the subsidiary’s California-based parent company. The Bank of England (BoE) intervened over fears that massive US withdrawals would spread to UK operations.
Many of SVB UK’s 3,300 clients, including numerous VC investors and startups, warned that if their deposits were lost, they would face bankruptcy. The BoE initially planned to bankrupt the bank would only have guaranteed protection for deposits up to £85,000, or £170,000 for joint accounts.
The deal with HSBC replaces the insolvency plan. Customer deposits can now be protected without taxpayer support.
“This action has been taken to stabilize SVB UK, ensure the continuity of banking services, minimize disruption to the UK technology sector and support confidence in the financial system,” the BoE said in a statement.
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After the deal was announced, SVB UK said it was resuming normal operations.
Following the announcement that @HSBC_UK SVB UK, we will resume normal business operations from today. Our customers should not notice any significant changes, but there may be short delays in the coming days as we return to normal. Thanks for the support
— Silicon Valley Bank UK (@SVB_UK) March 13, 2023
Tech UK, a industry lobby group, said the sale will be a relief to the UK tech ecosystem.
“Without access to their deposits, these companies faced the prospect of not being able to pay staff, rent or suppliers. Their jobs!” said techUK CEO Julian David.
For HSCB, acquiring all of SVB UK’s assets for a nominal £1 could be an extremely good deal. The Bank of London, which had also launched a rescue bid, described the sale as a “missed opportunity”.
“It cannot be right that the heritage banks that have served British entrepreneurs badly for years are once again taking advantage of their already dominant position,” the clearing bank said in a statement.
— The Bank of London (@thebankoflondon) March 13, 2023
Legal experts are already pointing out the lessons for startups. Charles Fletcher, partner at law firm Mishcon de Reya, recommended several steps companies can take to avoid the risks exposed by SVB UK.
Key actions include holding corporate accounts in more than one bank, having a contingency funding plan in place to avoid liquidity problems, separating funds from different sources, and taking a strategic approach to currency management, Fletcher said.
“These should accompany fundamental business planning and management steps, such as a detailed risk register and crisis management protocols.”