By Harry Mottram: HSBC have acquired the insolvent Silicon Valley Bank (SVB) for £1 after a frantic weekend of negotiations that saw potentially a massive hole blown in the UK economy as hundreds of firms collapsed after losing all their banking reserves. Chancellor Jeremy Hunt said he was in talks with the USA authorities, the Bank of England, the Prime Minister and the banks over the last two days after SVB collapsed.
The rescue plan means UK customers can access their accounts, pay their staff this week and pay their bills as their suppliers creating a collective sigh of relief amongst venture-backed technology and healthcare companies who make up most of SVB’s clients. Guestimates suggested that 50,000 people plus countless suppliers would have been hit in SVB in the UK had gone to the wall which would have spread contagion into the economy.
The USA banking authorities have stepped in to guarantee the American customers of SVB by backing the insurances taken out to cover any losses – so not quite a bail-out in the US more of an act of financial assurance so the bank doesn’t go bust.
This next section was written before the HSBC rescue:
Back in 2007 a financial problem concerning a bank in America didn’t immediately raise a concern over here but within months it led to a near collapse on the UK banking industry. So, it is no wonder there is a concern over the insolvency of the Silicon Valley Bank as it is linked to hundreds tech start-ups in the USA and over here.
Sky News have reported on the concerns of the Bank of England. They reported: “The Bank of England has said it is seeking a court order to place SVB UK into an insolvency procedure, after US regulators took over its parent company on Friday. The Treasury and the Bank of England are trying to minimise the disruption that could stem from a collapse of the UK arm of the bank. But, in a letter addressed to Chancellor Jeremy Hunt, more than 250 tech firm chief executives have been quick to voice their concerns.”
The letter said: “The recent news about SVB going into insolvency represents an existential threat to the UK tech sector. This weekend the majority of us as tech founders are running numbers to see if we are potentially technically insolvent.”
Ian Carrotte of ICSM said the main concern was the liquidity of the UK firms who bank with the US outfit as the Government only guarantee up to £85,000 while the average SME will have far more than that in bank reserves. He said: “It could mean scores of firms in the UK are insolvent – they can’t pay their staff or their suppliers. That has a knock effect to the wider economy – and lenders linked to the bank and to insolvent firms could then also be hit. This is how the Credit Crunch began so the Chancellor must act quickly.”
Jeremy Hunt appeared on TV on Sunday ahead of the Budget on Thursday to explain he was on the case and would be explaining what the Government and the Bank of England are planning to prevent the contagion.
The BBC said the Silicon Valley Bank ‘specialised in lending to early-stage businesses, and the company banked nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year’.
The firm started in California bank in 1983, and now has 8,500 people globally.
The problems started with interest rate hikes in the USA which led to investors withdrawing funds to place elsewhere.
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For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.
For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk