An emergency plan to prevent the collapse of the Silicon Valley Bank (SVB), which would destroy the UK tech sector and leave companies unable to pay their workers, was signed just two hours before the markets opened after a night of hectic negotiations.
Insiders told I The latest desperate deal with HSBC was struck at 6 a.m. Monday to avert a potential disaster for businesses that may not be able to pay their workers or meet their supply chain needs.
The deal was reached after weekend talks that began after Chancellor Jeremy Hunt was briefed on the lender’s plight on Friday when the Bank of England filed for bankruptcy of the bank’s UK arm.
The lender, which had been nominated for the Bank of the Year award at a chic City AM event just a few weeks earlier, was shut down by US regulators, sending shock waves to British industry and more than 3,000 UK deposit-taking businesses. , then launched SVB.
Intensive discussions and planning began immediately. Over the weekend, the Chancellor was in constant contact with Bank of England Governor Andrew Bailey, industry insiders, Treasury officials and Prime Minister Rishi Sunak, who remained in constant contact with his Chancellor as he flew to San Diego on Sunday.
While the bank insisted the collapse did not pose a systematic threat to the UK financial institution, insiders say it is becoming increasingly clear that it will have a significant impact on the UK tech sector. The risk to the financial sector may have been small, but it would still have affected thousands of clients, all of whom are at the center of the government’s economic strategy for innovation and growth in technology and the life sciences.
City Secretary Andrew Griffith held a stakeholder roundtable and more than 200 UK companies warned the government that the collapse was an “existential threat” to business.
By this point, any plans to bail out the bank had been abandoned, and instead officials began to devise several strategies on how best to protect corporate deposits. A few hours later, Mr. Jagd, Mr. Sunak, and Mr. Bailey agreed that the main strategy would be a private sale.
“We got an idea of the scale of the problem for the tech sector,” the source said. “As Saturday progressed, it became increasingly clear how big the impact would be. Clearly, as of Monday morning, there were serious concerns about the ability of some of the companies in question to transfer and pay their employees and supply chains.
The Treasury released a statement Sunday morning saying the government and the bank are “tackling this matter with a high priority” and are aware of the “significant impact” of the collapse on the “liquidity of the tech ecosystem.”
At this point, a sale began to look likely and HSBC was the strongest bidder. ADQ, Abu Dhabi’s state-owned investment firm, was one of the potential buyers, along with neobanks Bank of London and Oaknorth, but HSBC, which works directly with the Bank of England and the Treasury, quickly appeared in the polls.
But without confirmation, contingency plans were drawn up in parallel. One was the possibility that in the meantime the bank would have to place some sort of collateral to protect the business.
“If it had taken longer, the bank might have had to intervene temporarily with a government guarantee,” the source said. “There was never a bailout offer — it wasn’t about the bank, it was about protecting customers on Monday morning. It is reported that the Bank of England temporarily converted it to a bank, but this never happened.
By the time Sunak landed in the US just after midnight UK time, HSBC was the obvious option and the target had shifted to a sell confirmation before the FTSE opened at 8am on Monday. Officials feared a major market sell-off if the announcement was not made sooner.
The Chancellor was kept up to date with the deal throughout the night. The deal was completed around 6 am. This was announced just an hour before the opening bell.
Despite the collapse of the bank, both city insiders and the government remain confident that this will not lead to the infection of the technology sector.
SVB’s critics point out that the company had no protection from rate hikes, aside from its concentration of customers in startups, which were more financially disadvantaged than most other companies.
Many executives overlooked such issues, which argued that the company is simply faster, better, and more useful than any other option for those who aspire to be the next tech unicorn in the shape of Wise or Klarna. “If you want to get forms to open a new office in a day, it will take weeks for a typical large bank,” one executive told me. I. “SVB will do it in one day.”
In the end, however, efficient customer service did not prove to be a lifesaver for those involved in this weekend’s accident. One of the leaders of the startup told me about this. I that failure almost immediately proved to be an immediate threat to their business.
“It went from nothing to everything overnight. Within 24 hours we had to find out if payroll could be done this week,” they said.
A crisis has been averted for these companies – and ruin avoided – but the question remains which cog in the British economy could be the next victim of high interest rates and mismanagement.
Source: I News
I am Moises Cosgrove and I work for a news website as an author. I specialize in the market section, writing stories about the latest developments in the world of finance and economics. My articles are read by people from all walks of life, from investors to analysts, to everyday citizens looking for insight into how news will affect their finances.