The UK government is scrambling to secure an emergency deal to protect Britain’s tech and life sciences sectors from major losses after the collapse of Silicon Valley Bank (SVB), as financial markets braced for further volatility after the biggest bank failure since 2008.
The prime minister, Rishi Sunak, and the chancellor, Jeremy Hunt, signalled on Sunday that they were exploring a range of options, including an emergency fund that could provide a cash lifeline to support startups, as bidders put their hat in the ring for a potential takeover of the UK subsidiary. Hunt warned that fledgling businesses across the tech and life sciences sector were at “serious risk” if deposits were wiped out by the collapse of SVB UK.
The US treasury secretary, Janet Yellen, said on Sunday there would be no bailout for Silicon Valley Bank, but that the Biden administration was working closely with regulators to help depositors caught up in its collapse.
UK authorities were understood to be considering a private bailout. Representatives of SVB’s UK subsidiary have reached out to lenders including NatWest, Barclays and Lloyds Banking Group to gauge interest in a potential takeover of the British operations. British clearing bank the Bank of London confirmed on Sunday night it had submitted a rescue bid for the UK arm, alongside a group of private equity firms. “Silicon Valley Bank cannot be allowed to fail given the vital community it serves,” said Bank of London’s chief executive, Anthony Watson. A Middle Eastern investment firm from the United Arab Emirates, Royal, reportedly expressed interest in SVB UK, which has 3,500 customers, ranging from startups to established tech businesses such as the payments firm Wise and cybersecurity firm Darktrace.
The Guardian understands that the small business lender OakNorth, which was founded by the Conservative party donor Rishi Khosla and is advised by the former chancellor Phillip Hammond, has also thrown its hat into the ring, as first reported by Sky News.
Reports emerged late on Sunday that HSBC was in the running as a potential bidder, though the bank declined to comment. JP Morgan was also approached, but the Guardian understands it had not placed a bid as of Sunday night. The US lender also declined to comment. Hunt said the issue of SVB UK was a “high priority” for the government, which could also turn to the state-owned British Business Bank to explore government-guaranteed loans for the sector, similar to those offered to businesses during the Covid crisis.
SVB UK said over the weekend that “barring any intervening event”, regulators at the Bank of England would put the lender into insolvency from Sunday evening. Hunt has been locked in late-night meetings with Sunak and the Bank of England governor, Andrew Bailey, in an attempt to avoid further fallout from the collapse of SVB UK’s American parent company on Friday.
Investors and tech founders warned that hundreds of startups could be left insolvent without state intervention. “We will bring forward, very soon, plans to make sure people are able to meet their cashflow requirements and pay their staff, but obviously what we want to do is to find a longer term solution that minimises, or even avoids completely, losses to some of our most promising companies,” Hunt told Sky News.
While he insisted there was no systemic risk to the UK financial system, the chancellor said: “There is a serious risk to our technology and life sciences sectors, many of whom bank with this bank that most people won’t have heard of – the Silicon Valley Bank – but it happens to look after the money of some of our most promising and exciting businesses.”
The government has asked affected startups to disclose how much cash they had on deposit at SVB UK, as well as how much they tend to spend each month, and whether they had access to any other bank accounts other than the collapsed lender. The startup industry body Codec welcomed the government’s commitment to emergency support, saying it was “an acknowledgment of the scale of the challenge”, while investors indicated that they did not have a preference over the shape of the deal. “I don’t believe the sector is particularly bothered by what a package looks like – either through a British Business Bank scheme or otherwise – and has confidence in policymakers to make the right decisions,” Eileen Burbidge, a partner at the venture capital firm Passion Capital and a former fintech envoy to the Treasury, said.
“Affected companies simply want access to their hard-earned capital from either revenue and/or investors which they can access from a bank account in order to continue trading and servicing/supplying the UK economy – like they had on Thursday.” Sunak did not rule out an emergency fund being set up to guarantee deposits. He said on Sunday the suggestion was “speculation” but added when asked about the possibility: “We’re working through it; the Treasury is in touch.”
The PM, who is travelling to California for a meeting with US and Australian leaders, is understood to have been in “constant contact with Hunt over SVB UK” throughout the 14-hour journey.
American counterparts have also been working around the clock. Yellen said on Sunday she was working closely with banking regulators to protect depositors, but stressed that a major bailout was not being considered. “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again,” Yellen told the CBS News show Face the Nation. “But we are concerned about depositors and are focused on trying to meet their needs.”
Any widespread collapse of UK startups would be a blow to Hunt’s and Sunak’s ambitions to turn the UK into the “world’s next Silicon Valley”. The chancellor lauded the prospects of the sector’s growth during a speech in January.
The prospect of further fallout spurred the Treasury to hold an emergency meeting with UK tech industry representatives on Saturday evening, as more than 200 tech executives penned an open letter warning the chancellor that they were actively “running numbers to see if we are technically insolvent” as a result of SVB UK’s failure.
The letter explained that the tech sector was highly interconnected and that the loss of deposits had the potential to cripple the industry, with many businesses at risk of falling into insolvency overnight.
Silicon Valley Bank – which was the 16th largest lender in the US – collapsed and had its assets seized by US regulators on Friday after a tumultuous 48 hours. The lender had been trying to raise emergency funding to plug a near-$2bn (£1.7bn) hole in its finances, after an increase in withdrawals from customers in the tech industry who have seen funding dry up in recent months. The Bank of England subsequently ordered its UK subsidiary into insolvency on Friday night, putting firms at risk of losing almost all their cash. Only £85,000 of clients’ deposits will be protected by the Financial Services Compensation Scheme, or £170,000 for joint accounts, meaning many of SVB UK’s 3,500 customers will be facing major losses without government intervention.
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