The urgent plan to stop the collapse of Silicon Valley Bank (SVB) from sending the UK tech sector into meltdown, leaving firms unable to pay workers, was signed off just two hours before the markets opened after a night of frantic negotiations.
Insiders told i the last-ditch deal with HSBC was struck at 6am on Monday morning, averting the potential catastrophe of firms being potentially unable to pay their employees or meet their supply chain demands.
The agreement was reached after a weekend of negotiations sparked after Chancellor Jeremy Hunt was alerted to the lender’s situation on Friday, when the Bank Of England announced the UK arm of the bank was being placed into insolvency.
The lender, which had been up for the award of Bank of the Year at a plush City AM event just weeks earlier, had been closed down by US regulators – sending shockwaves through UK industry and the more than 3,000 British firms holding deposits with SVB.
Intense discussions and planning began immediately. Throughout the weekend the Chancellor was in constant contact with Bank of England Governor Andrew Bailey, industry insiders, Treasury officials and Prime Minster Rishi Sunak – who remained in constant contact with his Chancellor as he flew to San Diego on Sunday.
Whilst the Bank was insistent the collapse did not pose a systematic threat to the UK’s financial institution, insiders said it became increasingly apparent it would have a significant impact on the UK tech sector. The risk to the financial industry may have been small but it would still have impacted thousands of customers – all of which are central to the Government’s economic strategy of innovation and growth in the tech and life sciences sector.
City minister Andrew Griffith held a roundtable with stakeholders and more than 200 UK-based companies wrote to the Government warning firms faced an “existential threat” because of the collapse.
Any plans to rescue the bank were abandoned at this stage and instead officials began pulling together multiple strategies for how best to protect the deposits of companies. Within hours, Mr Hunt, Mr Sunak and Mr Bailey agreed that the primary strategy would be a private sale.
“We were building a picture of the size of the issue for the tech sector,” a source said. “It became increasingly clear what the scale of the impact would be throughout Saturday. Come Monday there would obviously have been significant concerns about the ability of some companies in question to bank and pay their employees and supply chains.”
The Treasury put out a statement on Sunday morning stating the government and Bank were “treating this issue as a high priority” and were aware of the “significant impact” the collapse could have on “the liquidity of the tech ecosystem”.
By that time, a sale began to look like a likely possibility and HSBC was the strongest contender. ADQ, a state-owned Abu Dhabi investment vehicle was one of the prospective buyers, alongside neo-banks Bank of London and Oaknorth – but HSBC quickly emerged in poll position and was negotiating directly with the Bank of England and the Treasury.
But with nothing confirmed, contingency plans were being drawn up in parallel. One of these was the possibility that the Bank would have to offer some kind of assurance to protect companies in the interim.
“Had it dragged on any longer the Bank might have needed to step in temporarily with a Treasury guarantee,” a source said. “There was never the suggestion of a bailout – the aim was not about the bank it was about protecting customers on Monday morning. The bank of England would have temporarily banked it but that never came to pass.”
By the time Mr Sunak touched down in the US, shortly after midnight UK time, HSBC had become a clear option and the goal shifted to confirming a sale before the FTSE opened at 8am on Monday. Officials feared a wider market sell off if an announcement was not made before then.
Throughout the night, the Chancellor was kept up to date on the deal’s developments. At around 6am, the deal was finalised. It was announced with just an hour to go before the opening bell.
In spite of the bank’s collapse, both city insiders and the Government remain confident that it will not result in contagion across the tech sector.
Critics of SVB have noted the company had a lack of protection against interest rate rises, alongside a concentration of clients in startups who have been feeling the financial pinch more than most other businesses.
Such problems were overlooked by many executives, who argued the firm was simply quicker, better and more helpful than any other option for those seeking to become the next tech unicorn in the mold of Wise or Klarna. “If you wanted to get forms to set up a new office in a day, it would take your typical high street banks weeks”, one executive told i. “SVB would get it done in a day”.
Ultimately, however, efficient customer service proved no saviour to those caught in the collapse this weekend. One executive at a startup told ithat the failure proved an imminent threat to their business almost immediately.
“It went from nothing to everything overnight. Within 24 hours, we were having to work out if it were possible to make payroll this week,” they said.
The crisis has been averted for these firms – and ruin avoided – but questions will remain as to which cog in the British economy could be the next victim of high interest rates and mismanagement.