The Bank of England is set to put Silicon Valley Bank UK into insolvency as soon as this evening – with tech champions warning that the bank’s collapse could be an extinction-level event for a host of UK firms.
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 mortage backed securities, which took a pummeling 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.
Tech leaders have called for a solution to be found before markets open on Monday morning.
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.
One 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.
Both the Treasury and the Bank have said they do not perceive SVB UK to have “systemic” importance but within the tech industry it certainly does.
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.
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.
But the issue is not losing their deposits, as SVB UK is well-capitalised itself, but access to cash that’s the issue.
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.
WHEN WILL WE FIND OUT?
As of 5:30pm, the various moving parts of the Treasury and the Bank of England are still locked in talks, and likely to be so long into the night.
That will not do much to reduce the Sunday scaries across the tech world, however.