Closing post
Speaking of going home from work….. it’s time to wrap up.
Our US politics Live blog is tracking the latest developments on Silicon Valley Bank, here:
So here are our main stories on the banking crisis today:
Updated
Nils Pratley: Relief in the UK over Silicon Valley Bank. Panic in the US
The fallout from the failure of SVB, plus the closure of Signature Bank, could get a lot worse yet, my colleague Nils Pratley warns, writing:
The good news is that it took only a long weekend to find a fix – a good one – for the UK end of the doomed Silicon Valley Bank. Our tech executives can stop writing emotional pleas to the chancellor about their unique importance to the nation’s prosperity.
The bad news is that US regulators’ solution for the very much larger parent bank raised more questions than it answered. The fallout from the failure of SVB, plus the closure of Signature Bank, could get a lot worse yet.
Back in parliament, Conservative MP Louie French asks if enough work is being done to stress-test the liquidity of UK banks and the bond markets, given the recent LDI crisis.
City minister Andrew Griffith says the government will indeed learn lessons if they need to be learned.
But one lesson he’s keen to hammer home, is what a good job the government has done. Griffith declares:
We should not look past the fact that today we have protected customers, protected the taxpayer, and the security of the financial system.
Many, many people will go home from work today much more confident, with the jeopardy of the weekend having been removed as a result of the decisive action the government has taken.
This yields a supportive blast of ‘hear hears’, and the ministerial statement is over.
A hastily assembled WhatsApp group, then relief: UK tech firms react to SVB
UK tech firms breathed a “collective sigh of relief” on Monday after a rescue of Silicon Valley Bank’s British arm was announced, amid fears that failure to broker a deal would have plunged the industry into an immediate crisis.
Industry insiders said a WhatsApp group called “save UK tech” was hastily assembled over the weekend as the sector attempted to stave off the threat of financial problems swamping tech firms as soon as Monday. A crisis was averted, however, when the government helped broker the acquisition of SVB’s UK operations by HSBC for £1 in a deal announced on Monday morning.
Russ Shaw, the founder of Tech London Advocates, an industry body, said tech firms and investors heaved a “collective sigh of relief” when the deal was announced.
More here:
Some good news from Professor Costas Milas, of the Management School of University of Liverpool – there are not signs of financial stress in the UK, yet anyway.
Professor Milas explains that Bank of England policymakers should consider this issue when they meet to set interest rates this month:
Tthe European Central Bank compiles systemic stress indicators for a number of countries.
For the UK, the index includes 15 raw, mainly market-based financial stress measures that are split equally into five categories, namely the financial intermediaries sector, money markets, equity markets, bond markets and foreign exchange markets. The index is compiled daily and does not, so far, indicate any signs of stress for the UK.
This is quite reassuring. If the index were to rise significantly, its negative impact on UK growth would be expected to last (based on recent research) for up to 20 months. I do not expect this to happen but, in any case, this very possibility is something for the MPC members to consider when deciding on UK interest rates next week…
Labour’s Daniel Zeichner asks whether HSBC will provide the same support to small tech companies that Silicon Valley Bank UK achieved.
Ctiy minister Andrew Griffith says it’s up to HSBC how they run their services, but it’s a '“prodigiously successful” international institution. He claims it sees that the government is committed to the tech and life sciences sectors.
The SNP’s Anum Qaisar asks whether the SVP UK crisis highlights the dangers with deregulating the banking sector – something often touted as a benefit of Brexit.
City minister Andrew Griffith doesn’t accept this, saying the government’s deregulation legislation is still going through parliament, so the rules being used were from pre-Brexit days.
Bravo for the Bank of England, says Conservative MP Kit Malthouse, saying it got a chance to put its well-honed bank rescue skills into use last weekend.
Malthouse is relieved that taxpayers money wasn’t used to rescue SVB UK, but shouldn’t capitalism be allowed to recycle distressed assets?
Griffith agrees that capital should be recycled to productive uses. The government’s top priority was to find a private sector solution to SVB UK.
Is there a lack of diversity in banking options for UK tech firms, asks Labour’s Chi Onwurah, and a dependence on the US?
And why did no authorities in the UK notice the build-up of Treasury bills on its US balance sheet, and its exposure to interest rate rises?
Andrew Griffith says the UK has taken a former subsidiary of a US business and put it into a thriving UK-listed business.
Stephen Kinnock, Labour MP, asks what risk assessment took place before SVB UK was given its banking licence.
City minister Andrew Griffith says there is ‘risk in any financial system’, and that SVB UK has taken part in stress tests conducted by regulators.
Liberal Democrat MP Sarah Olney says that depositors who listened to Silicon Valley Bank UK executives last week would have faces losses today if the rescue deal hadn’t been done.
Q: Will they face any conseqences for rule breaches?
Andrew Griffith says it was a ‘terrible weekend’ for SVB depositors and everyone who depended on the bank.
It would be ‘inappropriate’ for him to comment on things which have been said, though.
Conservative MP Danny Kruger asks whether the UK government would ever, hypothetically, be willing to use taxpayer money to rescue a bank. Could he rule it out?
City minister Andrew Griffith won’t give any guarantee on this (sensibly, really, as you never know what may be needed in future…)
Andrew Browne MP says there were loud sighs of relief this morning at his South Cambridgeshire constituency, from companies who feared for their futures before HSBC rescued Silicon Valley Bank UK.
Updated
Sammy Wilson MP of the Democratic Unionist Party fears that the rescue deal has been done in haste.
Q: What due diligence has HSBC done? And is the government sure that this won’t be a repeat of Lloyd’s ill-fated takeover of HBOS in 2008 that led to a bailout by the taxpayer?
(and carnage for Lloyds shareholders, one could point out)
City minister Andrew Griffith can’t comment on HSBC’s due diligence, but says they got ‘comfortable’ about the deal. Plus, they are a very large bank – SVB’s client base would be less than 1% of HSBC’s.
Conservative MP Sir Desmond Swayne asks a corker of a question next:
Q: What estimate had the Bank of England made of the health of SVB UK before the events of the weekend?
City minister Andrew Griffith seems briefly flummozed, before saying he can’t answer on behalf of the BoE.
The regulator is independent, he explains, and the Treasury committee regularly takes evidence from the BoE, and will do so in future.
Labour MP Alison McGovern tells Andrew Griffith that his statement was a bit long on self-congratulation and a bit short on explanation (a fair point tbh)
Q: What questions has the City minister asked about what went wrong? Why were so many of these tech companies clustered at this one bank?
Griffith says it’s not unusual for a bank to have a particular focus, such as credit union’s which often have a geographical one.
Conservative MP Andrea Leadsom congratulates city minister Andrew Griffith and all involved with the rescue of Silicon Valley Bank UK, saying:
It was absolutely vital that we urgently acted to protect the fear and the risk of contagion that we saw over the weekend.
Q: Did SVB’s UK ringfencing help to avoid a repeat of the problems with Lehman Brothers, which sucked capital out of the UK when they were in trouble?
Griffith says it did indeed help, outlining how SVB UK was constituted as a subsidiary in the UK with its own balance sheet.
That allowed viability to be restored, by finding a large bank to put its balance sheet behind SVB UK.
Labour MP Dame Angela Eagle points out that regulatory changes in the US meant that the problems at Silicon Valley Bank, as a smaller bank, were not spotted.
Q: Might the government’s Edinburgh reforms bring a similar risk? [they will shake-up UK regulation]
City minister Andrew Griffith isn’t keen to comment on regulation in the US.
But ‘taking back control’ [after Brexit] and streamlining regulation will mean better outcomes for the sector, he claims.
And he explains it is ‘appropriate’ to give HSBC the waiver on ring-fencing rules to buy SVB UK, as it will only make up under 1% of its clients.
SNP MP Stewart Hosie puts his finger on the cause of Silicon Valley Bank’s collapse – that it held a large number of bonds whose values fell as interest rates rose.
That created a capital shortfall when SVB had to sell them.
Q: Should UK regulators make UK banks mark their bond holdings to market, so we can assess their capital ratios and see if there is a systemic risk problem?
Andrew Griffith appreciates Hosie’s support for the speedy rescue package.
But he advises against comparing what happened in the US with the UK bank, which had a different, ringfenced balance sheet.
The withdrawal of deposits was the cause of SVB UK’s collapse, he says, and the need for a rescue.
Conservative MP Harriett Baldwin, chair of the Treasury committee, asks if SVB bank got any special treatment because it was focused on the technology and life sciences sector.
Secondly, is Griffith concerned by reports that investors in tech businesses forced those businesses to put money into Silicon Valley Bank?
And is crypto contributing to financial instability, given the bank collapses in America?
City minister Andrew Griffith says Silicon Valley Bank UK was unusually concentrated, with a different model to the US.
He hasn’t seen any evidence that banking of crypto assets had been a factor in its collapse.
But, the US rescue package last night meant the UK had ‘the space’ to act and protect SVB UK.
City minister Andrew Griffith says SVB UK’s separate banking licence allowed UK regulators to arrange a deal over the weekend.
He says the exemption on ring-fencing requirements handed to HSBC will be permanent.
And on whether the government will hold a systemic review of the situation, Griffith says such times are ‘always opportunities’. But he repeats his earlier point that the system has worked as it should.
Updated
Labour poses questions over SVB crisis
The Labour party welcome the news that HSBC will buy the UK arm of Silicon Valley Bank in a rescue deal, says Tulip Siddiq, shadow economic secretary to the Treasury.
But now that those who bank with SVB have some certainty, Siddiq says, the government should examine how we got here.
Q: When SVB UK was granted a separate banking licence last year, what assessment did the Treasury and Bank of England make of the significant liquidity risks arising from having a deposit base of a small number of high-value corporate deposits?
Siddiq points out that the impact of the collapse of SVB are still being felt across the market today
Q: What assessment does the minister make of the FTSE 100 being down today, and bank shares falling 5% this morning?
Siddiq asks for reassurance that HSBC will continue to support early-stage tech and life-science firms.
She also asks whether HSBC’s exemption from ring-fencing rules, to get the deal done, will be permanent or not.
City minister Andrew Griffith thanks his fellow ministers across Whitehall, officials at the Treasury and regulators who “worked tirelessly through the weekend to grip this situation, deliver this solution, and prevent real jeopardy to hundreds of the UK’s most innovative companies.”
Today’s outcome for SVB UK is the “best possible” outcome, Andrew Griffith insists.
“There has been no bailout”, the City minister tells parliament, adding that customers, taxpayers and the banking system are all winners from the purchase by HSBC.
Shareholders and creditors, not depositors, will bear the losses from the rescue, he says.
The Bank of England has used its powers to execute a “mandatory reduction in capital instruments in SVB UK, restoring it to viability”, Griffiths explains.
Updated
City minister: Uk banking system remains safe, sound and well-capitalised.
Over in parliament, City minister Andrew Griffith is updating MPs about the situation with Silicon Valley Bank.
Griffith explains that the government has acted to limit the damage to the UK’s tech and life sciences sector.
He confirms that the goverment, working in concert with the Bank of England, has facilitated the purchase of SVB UK by HSBC early this morning.
HSBC are Europe’s largest bank, listed in London, with 39 million customers globally,
Griffith says:
Those affected are now secure, in the knowledge that their deposits are protected and they can bank as normal.
Customers should not notice any changes he says, adding;
The wider UK banking system remains safe, sound and well-capitalised.
Griffith says the government used stabilising powers granted in the 2009 Banking Act.
We have forstalled disruption in the tech sector, and supported confidence in the UK financial system.
FTSE 100 posts biggest loss since last July
Ouch. Britain’s blue-chip share index has posted its biggest one-day fall since last summer.
The FTSE 10 index has just closed for the day down 199.7 points at 7548 tonight, as the markets were rocked by the fallout from the collapse of Silicon Valley Bank.
That is the FTSE 100’s lowest close since 3rd January, meaning it has lost most of its gains in early 2023 in the last few weeks since hitting record hight in February.
It’s a fall of 2.58%, the biggest one-day fall since early July last year.
Bank shares ended in the big fallers, with Standard Chartered down 6.9% and Barclays losing 6.3%.
The FTSE 250 index of medium-sized UK companies also had a rough day, losing 2.75%.
But the big losses today remain in US regional banks, where some big names are nursing some major falls:
One day returns of U.S Regional Bank Stocks Now:
— StockUp Finance (@Mohitmehta189) March 13, 2023
1. Western Alliance, $WAL: -75%
2. First Republic, $FRC: -65%
3. Zions Bancorp, $ZION: -43%
4. PacWest, $PACW: -41%
5. Comerica, $CMA: -33%
6. Fifth Third, $FITB: -20%
Banks are in deep trouble. How this pain will spread?
Charles Archer, markets analyst at IG, writes that there are “real questions over whether regulators have now opened the financial floodgates” with last night’s rescue package:
Late on Sunday, US regulators announced that ‘depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.’ They also guaranteed deposits at the smaller and similarly troubled Signature Bank.
While shareholders, most creditors, and the bank itself will be allowed to collapse unless a buyer can be found, there are now real questions over whether regulators have now opened the financial floodgates. Depositors at any failed bank will now demand similar treatment over deposit security, and while this step was clearly necessary to maintain financial stability, there is an argument to be made that this was a Pandora’s Box that should have stayed firmly shut.
Despite regulatory reassurance, Western Alliance Bank has seen shares fall by 75%, First Republic Bank by 67%, and PacWest Bancorp by 35%. Internationally, banks as large as HSBC and Barclays see smaller share price falls, while troubled Credit Suisse has fallen to its lowest ever market value as default swaps hit another record.
There is a risk that depositors at smaller banks will withdraw cash in favour of the security of those presumed to be too big to fail. This risk is compounded by the speed of social media — panic can now spread at lightning speed.
My summary of the Silicon Valley Bank crisis for IG below.
— Charles Archer (@that_stocks_guy) March 13, 2023
Just the beginning imo. Not advice.#SVB #SiliconValleyBank #SVBCollapse #interestrates #JeromePowell #powell #Fed #silvergate #SignatureBank https://t.co/b6kJZzu61W
Updated
Ackman: FDIC needs to explicitly guarantee all deposits now
Billionaire investor and hedge fund manager Bill Ackman is calling on US banking regulators to explicitly guarantee all deposits now.
“Hours matter,” he says in a tweet.
The current scheme guarantees up to $250,000.
Ackman says:
We also need a modern version of our deposit insurance regime, but that will take some time, and that’s ok as long as all deposits are guaranteed in the interim.
Ackman also argues that regional bank stocks are an “incredible bargain” right now as long as the government does the “right thing”.
Ackman also suggests that Warren Buffett (who recommends being greedy when others are fearful) may be investing in regional banks as their shares slide.
This is not without real risk, but it does offer very attractive asymmetry. I would be surprised if Warren isn’t putting capital to work in his favorite regional banks now.
Our economy will not function effectively without our community and regional banking system. Therefore, the @FDICgov needs to explicitly guarantee all deposits now. Hours matter.
— Bill Ackman (@BillAckman) March 13, 2023
We also need a modern version of our deposit insurance regime, but that will take some time, and… https://t.co/38mcc75M9a
Updated
Shares in Charles Schwab have partially rebounced from this morning’s losses, after the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following Silicon Valley Bank’s collapse.
Schwab shares are currently down around 15%, after earlier plunging as much as 23%.
Joseph Stiglitz: Silicon Valley Bank’s failure is predictable – what can it teach us?
Economics professor Joseph Stiglitz says that the collapse of Silicon Valley Bank represents more than the failure of a single company. Instead, it shows deep failures in the conduct of regulatory and monetary policy.
Stiglitz writes:
Like the 2008 crisis, it was predictable and predicted. Let’s hope that those who helped create this mess can play a constructive role in minimising the damage, and that this time, all of us – bankers, investors, policymakers, and the public – will finally learn the right lessons. We need stricter regulation, to ensure that all banks are safe. All bank deposits should be insured. And the costs should be borne by those who benefit the most: wealthy individuals and corporations, and those who rely most on the banking system, based on deposits, transactions, and other relevant metrics.
It has been more than 115 years since the panic of 1907, which led to the establishment of the Federal Reserve system. New technologies have made panics and bank runs easier. But the consequences can be even more severe. It’s time our framework of policymaking and regulation responds.
The market is sending a consistent message today: it fears that a US recession is about to start.
So says George Saravelos, a strategist at Deutsche Bank, who writes:
We are now pricing in Fed cuts rather than hikes, the yield curve is bull steepening sharply, commodities and equities are down with cyclicals under-performing. This is all consistent with an imminent US recession
Deutsche Bank among those forecasting Fed rate cuts and a recession after #SVB as US banks will yank up rates on retail deposits and tighten financial conditions. "Competition for deposits is likely to become irreversibly more intense in the US banking system going forward"
— Mehreen Khan (@MehreenKhn) March 13, 2023
⚠️ FIRST REPUBLIC HAS BEEN ABLE TO MEET WITHDRAWAL DEMANDS ON MONDAY WITH HELP OF ADDITIONAL FUNDING; NOT SEEING MASSIVE OUTFLOWS OF DEPOSITS- CNBC
— PiQ (@PriapusIQ) March 13, 2023
Back in the markets, bitcoin has jumped to its highest level since 21 February, touching $24,618.
Bitcoin up 13% on the day and continues push from Friday's low #Bitcoin #BTC pic.twitter.com/DdK56A0IGU
— IG (@IGcom) March 13, 2023
Other crypto assets have also stabilised today, having been hit by the collapse of SVB late last week.
The issuer of the USD Coin stablecoin said it remained redeemable with the dollar, after it hit a record low on Saturday after it emerged that $3.3bn of the reserves backing it were held at Silicon Valley Bank.
Jeremy Allaire, CEO of USDC issuer Circle, said in a tweet on Sunday that the company’s $3.3 billion USDC reserves deposit - about 8% of its total - held at SVB would be fully available when U.S. banks open on Monday.
Allaire said:
“Circle’s USDC operations will open for business, including with new automated settlement via our new partnership with Cross River Bank.”
Circle’s USDC operations will open for business on Monday morning, including with new automated settlement via our new partnership with Cross River Bank. https://t.co/ybkSEedzrC
— Jeremy Allaire (@jerallaire) March 13, 2023
Another clip from President Biden speaking earlier, explaining why investors in failed US banks won’t be bailed out:
Pres. Biden says those who invested in failed Silicon Valley Bank and Signature Bank will not be protected: “They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.” https://t.co/HWi82gAbJP pic.twitter.com/3hVKFJqmZt
— ABC News (@ABC) March 13, 2023
Simon Harvey, head of foreign exchange analysis at Monex Europe shows here how the markets have clashed their expectations for interest rate increases:
In the space of 4 business days, markets have gone from nearly 100bps of hikes this year to 54bps worth of cuts pic.twitter.com/Tnl8cKjUz4
— Simon Harvey (@_SimonHarvey) March 13, 2023
The irony of a bank going under due to higher market rates leading to lower rates
— Simon Harvey (@_SimonHarvey) March 13, 2023
HSBC was given ring-fencing waiver to help smooth SVB deal
The UK government cleared the way for HSBC to buy the British arm of Silicon Valley Bank by waiving certain restrictions on what types of customers could be taken on by its UK retail bank.
HSBC was given an exemption over rules that do not allow complicated corporate customers to be housed within ring-fenced banks, Andrew Griffith, the City Minister, said in a letter Monday to the Treasury Select Committee.
Best possible outcome in these challenging circumstances. Thanks to everyone who worked round the clock to achieve it. Hope to have the chance to ask questions in @UKParliament later. pic.twitter.com/TsI4zlUBpG
— Harriett Baldwin MP (@hbaldwin) March 13, 2023
He later told Bloomberg TV that neither the government nor the Bank of England gave HSBC any guarantees. More here.
Updated
First Republic Bank’s shares are continung to plunge today as news it had obtained fresh financing failed to assuage investor fears of contagion in the banking sector after SVB Financial Group’s downfall last week.
The U.S. regional lender’s stock is down around 70%, as it continued to face concerns of deposit outflows.
Reuters reports trading was halted for volatility at one point.
The latest on First Republic Bank: Its shares are down a record 73% despite efforts by the lender to reassure investors on its liquidity https://t.co/UcHuUKm43I pic.twitter.com/Ms9XeuswwC
— Bloomberg (@business) March 13, 2023
First Republic on Sunday secured additional financing through JPMorgan Chase & Co and the U.S. Federal Reserve, giving it access to a total of $70bnin funds through various sources.
Lloyd Blankfein, the former CEO of Goldman Sachs, reckons only a few more banks will have similar issues to SVB (he doesn’t name them, though).
He tweets that government actions have removed the reasons for bank runs, and that the biggest banks have much tougher regulation and stress testing.
A few banks may have issues like SVB, but only a few. Govt actions removed reasons for bank runs. Biggest banks have much tougher regulation and stress testing. Anxiety and volatility high, but sharply lower interest rates, fed likely on hold, are strong positives for markets.
— Lloyd Blankfein (@lloydblankfein) March 13, 2023
The collapse of Silicon Valley Bank is a timely reminder that “a tough money squeeze” by central bankers can do more damage than just slow things down, points out Garry White, chief investment commentator at Charles Stanley
The technology sector is already reducing its workforce and experiencing more constrained profits and cashflows from the reduction of growth. Technology companies that used Silicon Valley Bank as an industry friendly service provider could not afford to lose their deposits which was often money held there to pay the wages and their suppliers.
“The action to protect the deposits was necessary to prevent bankruptcies by companies that had money but could not access it, and to stop that spilling over into losses for their suppliers. These events provide a further limit to how high the Fed needs to take rates to slow the economy.”
Biden fails to stop market selloff
Joe Biden’s words of reassurance today have done little to calm markets as “worries raced around that other smaller US banks could become the latest dominos to fall”, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:
Streete explains:
His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules. So, even though the collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading. The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.
The wider banking system will bear the brunt of the bail out of banking customers, as the money will come from fees institutions pay into the deposit insurance fund.
The realisation that regulatory action isn’t stopping the rot has led to sharp falls in some of Wall Street’s biggest banking names in early trade such as Wells Fargo down 7.5%, Citigroup down 6%, and Bank of America down 7%. Despite the pretty bold regulatory action investors have still been shaken by the events of the past few days and are highly nervous about spilling over and creating pools of fresh problems.
The freefall of shares in a raft of smaller lenders including First Republic bank, Western Alliance Bancorp and PacWest Bancorp shows the extent of the contagion concerns with shareholder confidence evaporating.
The Swiss financial regulator said today it was seeking to identify any potential contagion risks for the country’s banks and insurers following the collapses of Silicon Valley Bank on Friday, and Signature Bank on Sunday.
FINMA said in a statement:
“FINMA takes note of the media reports on Silicon Valley Bank and Signature Bank in the USA and is closely monitoring the situation,”
Shares in Swiss banks continue to fall today, amid the wider losses in the banking sector, with Credit Suisse currently down 11.7% and UBS down 7.6%.
French finance minister Bruno Le Maire insised this morning that the collapse of SVB Financial Group posed no risk to the French banking system.
He told franceinfo radio.
“We are monitoring the situation in the U.S. but there is no specific alert on the French banking system, which is solid,”
France's Finance Min. Le Maire:
— DailyFX Team Live (@DailyFXTeam) March 13, 2023
-I don't see a specific risk of contagion from SVB
- French banks are solid, an asset for France
UK tech groups welcome SVB rescue deal
Back in the UK, technology firms are cheering the sale of Silicon Valley Bank UK to HSBC early this morning.
One influential tech group said anxiety levels were “off the scale” for many start-ups in the hours of intense negotiations leading up to the rescue deal.
Russ Shaw, the founder of Tech London Advocates, told the PA news agency that well over 100 tech leaders and investors were working with the Government, the Treasury, the Bank of England and tech firms over the weekend to demonstrate the magnitude of the problem.
He said
“We were trying to gather information, pass it to the Government to say, the size and scale of this is going to be big.
“The Prime Minister has said he wants the UK to be a science and tech powerhouse, but if we don’t get this sorted by Monday, we are going to probably lose about a third of our tech sector as a result of this one bank closure.
“So it was significant and I think we felt like we were staring into the abyss.”
Shaw said the smallest firms still had about £25,000 with SVB UK, but he was in touch with one start-up that had more than £10 million of exposure to the bank.
Some firms had all their money with the flailing bank, he stressed, which led to high levels of anxiety amid the impending insolvency.
“We estimated that probably several thousand UK start-ups were going to be impacted by this, so it was big.”
Dom Hallas, the executive director of the Coalition for a Digital Economy (Coadec) which represents UK scale-ups, was one of the tech leaders working closely with the Government over the weekend.
Hallas agrees that the sale to HSBC is a big relief for concerned businesses whose deposits were at risk.
“The Government deserves huge credit from the very top, to HM Treasury who understood the challenge and gripped it, to the huge number of civil servants who have likely not slept since Friday.
“It’s glib to say it – but there are hundreds of founders around the country who will thank you for your work.”
Mr Shaw added that it’s a rather good deal for HSBC:
“HSBC just acquired an incredible portfolio of businesses, frankly, who are all very healthy. It’s not like they were distressed – the issue is that they couldn’t access their funds.
“Suddenly, in one fell swoop, HSBC have acquired a number of great, high-growth, scaling businesses. It feels like it is a win-win.”
Konstantin Sidorov, the chief executive of the London Technology Club, told PA that the rescue deal marked a “pivotal moment” for the UK as a major global tech and science hub.
He said:
“It is thanks to the Government that it reacted quickly and understood the importance of the bank’s role in the industry. It is an amazing sign that it is very, very serious about supporting the industry.
“I think it would have been impossible for the Government to say we support tech, and we are doing everything we can for the sector, and then just destroying what they had built over the years.”
He added that the move will have given investors confidence after a “very nervous weekend” for the sector.
Here’s a video clip of president Biden speaking on the collapse of SVB about an hour ago:
President Biden stressed that “no losses will be borne by the taxpayers” in the U.S. rescue of Silicon Valley Bank deposits. @kaylatausche reports. https://t.co/cWfPODpUFb pic.twitter.com/Fcb1YhGPJq
— CNBC Politics (@CNBCPolitics) March 13, 2023
One side-plot in the rescue of Silicon Valley Bank is that a lot of techologists and venture capitalists who often criticise Big Government and state oversight have just managed to get their bank deposits bailed out.
As John Thornhill of Sifted writes in the Financial Times, the tech sector is very fond of railing against government intervention – until its own money is at risk.
The SVB fiasco… shines an unforgiving spotlight on the hypocrisy of some of the biggest venture capital players on both sides of the Atlantic, who privately urged their portfolio companies to pull their money from the bank and then later publicly called for government support. SVB collapsed on Friday as a result of a classic bank run after customers withdrew $42bn of deposits.
Just like many of the banking titans after the global financial crisis of 2008, tech tycoons appear to favour the privatisation of profits and the socialisation of losses. There are few libertarians in a financial foxhole.
It’s a bailout, pure & simple. For years, SVB and its cronies lobbied for looser risk limits by arguing that its failure wouldn’t create “systemic risk” and wouldn’t need special intervention by the U.S. government. Yet now the same cronies claim SVB was “systemically important.”
— Vivek Ramaswamy (@VivekGRamaswamy) March 13, 2023
Shares in some US regional banks tumble
As feared, regional bank shares are sliding too in New York.
San Francisco’s First Republic has plunged by 66% at the open, PacWest Bancorp of Los Angeles has fallen 46%, and Western Alliance Bancorporation of Phoenix, Arizona are down 76%.
San Francisco's First Republic shares lost 65% on Monday acWest Bancorp dropped 42%, and Western Alliance Bancorp lost more than 70% as regional bank stocks fell sharply. Zions Bancorporation shed 39%, while KeyCorp fell 23%. Bank of America lost 6%, Charles Schwab tumbled 18%.
— Red Hot Chilean Prepper (@JohnDou69102108) March 13, 2023
The key question today, argues Neil Wilson of Markets.com is whether regulators have intervened to prevent contagion efficiently to make the banking sector stronger, or simply kicked the can down the road again.
He suggests the mood in the market is closer to Apocalypse Now than It’s A Wonderful Life, writing:
When George Bailey dipped into his honeymoon funds to help get depositors through the weekend without closing the Building and Loan company, he probably wished he had today’s incarnation of the FDIC, Federal Reserve and US Treasury backing him. US regulators’ actions may have saved SVB depositors and thousands of businesses, but the unintended consequences will be enormous.
Was it a bailout? Yes and no. Shareholders won’t be made whole, depositors will. In practice, it is of course a bailout – when we discuss bailing out a bank we are not talking about the share price (investors) but the deposits (customers) – preventing a run that mean depositors have to take cents on the dollar. One thing is certain – there will be much debate about whether US regulators should have done what they did. And another thing we can say for certain is this – whatever way you cook it, the ingredients for the failure of SVB and wider fretting about the banking sector is down to having very long period of artificially low borrowing costs followed by a very sharp increase in the cost of money. Kool Aid is a hard habit to kick.
Moral hazard? There will be all kinds of unanticipated consequences – or unintended perhaps; we can anticipate that things might happen even we don’t intend them to do so.
US bank shares fall at the open
Shares in US banks are tumbling at the start of trading in New York, despite Joe Biden’s insistance that the system is strong.
Bank of America have dropped by over 7%, JPMorgan Chase & Co have dipped 2%, and financial services company Charles Schwab has plunged by 19%.
This is Wall Street’s first chance to react the support package announced yesterday after the collapse of Silicon Valley Bank.
$schw are you ok? pic.twitter.com/dqMX8nayld
— Andrey Nousi, CFA (@AndreyNousi) March 13, 2023
Updated
Biden: Your deposits and the banking system is safe
The bottom line, Joe Biden insists as he talks about the Silicon Valley Bank collapse, is that:
Americans can rest assured that our banking system is safe.
Your deposits are safe.
We will not stop at this, we will do whatever is needed, the president adds.
Updated
Biden to push for stronger rules on banks.
President Biden declares that policymakers must reduct the risks of these banking collapses happening again.
He explains that the Obama-Biden administration (in which he was vice-president) put in place “tough new requirements” on banks such as Silicon Valley Bank and Signature Bank.
That included the Dodd-Frank law to make sure that the crisis we saw in 2008 would not happen again, Biden explains:
Unfortunately, the last administration rolled back some of those requirements.
I’m going to ask Congress and the banking regulators to strengthen the rules of the banks to make it less likely that this kind of bank failure would happen again.
That would protect American jobs and small businesses, he adds.
There are important questions about how these failing banks got into these circumstances in the first place, president Biden continues.
We must get the full accounting of what happened, and why, [so that] those responsible can be held accountable.
No-one in my administration is above the law.
Investors in the banks “will not be protected”, Biden continues.
That’s how capitalism works, he explains – investors knowingly took a risk, and have lost money because the risk didn’t pay off.
Biden: The management of these banks will be fired
Biden then declares firmly:
The management of these banks will be fired
If a bank (such as SVB or Signature) is taken over by the FDIC, the people running the bank should not be working there any more, he explains.
Updated
Biden: Taxpayers will not bear any losses from SVB collapse
US president Joe Biden is speaking about the Silicon Valley Bank crisis now.
Biden says the rescue package announced by US authorities last night – which guaranteed all deposits -- means that SVB’s customers will be able to pay their workers and pay their bills.
“Their hard-working employees can breathe easier as well,” Biden smiles.
Biden says that Treasury secretary Yellen and a team of banking regulators have taken immediate action – the Federal Deposit Insurance Corporation took control of Silicon Valley Bank on Friday evening, and then Signature Bank on Sunday.
Biden says:
All customers with deposits at these bank can rest assured, they’ll be protected and they’ll have access to their money as of today.
That includes small businesses who need to make payroll payments this week (a key worry for many customers), the president explains.
And he states firmly, twice, that “No losses will be born by taxpayers”.
Instead, the money will come from the fees that banks pay into America’s deposit insurance fund.
Updated
Government bond prices are soaring today, as fund managers ramp up their bets that the Federal Reserve could leave US interest rates unchanged at its next monetary policy meeting this month.
Just last week, markets were anticipating another half-percentage point rise from the Fed, after hawkish words from chair Jerome Powell about the need to fight inflation.
As bond prices rocket, the yield (or interest rate) on two-year US Treasury bills has dropped by 43 basis points to 4.16% from 4.6% on Friday night. That’s a sign that investors are cutting their forecasts for short-term interest rates, and not demanding such as high rate of return for holding government debt.
These higher prices should be good news for banks, as it reduces the losses on their stocks of government bonds bought when yields were lower (and thus prices higher).
But, rising interest rates are also good for bank profits.
Happily, Silicon Valley Bank UK customer Diaceutics has now asked for its shares to be unsuspended.
Diaceutics, a testing laboratories company, requested the suspension at 7am after being unable to access any of its funds held by SVB (as covered here).
But that was before it had learned that HSBC had bought its bank.
Now, Diaceutics says it “has comfort” that it will regain access to its £19.8m of cash and cash equivalents currently held on deposit with SVBUK.
It adds:
This access removes all uncertainty over the Company’s ability to service its working capital requirements and as a result the Company has therefore requested that the temporary suspension of the Company’s ordinary shares on AIM is now lifted.
A quick recap
A quick catch-up of the key points so far today.
The UK arm of collapsed US lender Silicon Valley Bank has been bought by HSBC after a weekend of negotations involving the Government and Bank of England.
HSBC is paying a symbolic £1 for SVB UK, after the tech-focused bank’s US parent company collapsed last week.
I always wonder with these deals whether the last thing at the signing involves some lawyer saying "and now we will just need that pound" and all the bankers have to go through their pockets saying "I'm mainly contactless these days"
— Dan Davies (@dsquareddigest) March 13, 2023
Announcing the deal, Noel Quinn, HSBC Group CEO said his bank would help SVB UK customers “grow in the UK and around the world.”
The Bank of England and HM Treasury confirmed that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
Chancellor Jeremy Hunt said it was important to find a rescue deal for SVB UK that didn’t involve taxayer funds.
We were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”
-
Speaking before the announcement, prime minister Rishi Sunak insisted “our overall financial system is sound and there’s nothing to worry about there”.
Sunak was in close contact with Hunt during his 14-hour flight to the US yesterday where the PM will hold talks with Joe Biden and Australia’s prime minister Anthony Albanese.
Dozens of companies listed in London updated shareholders on their exposure to the collapse of Silicon Valley Bank and its UK branch.
But there has been more losses in the financial markets, with Europe’s main indices falling around 2%.
Investor have dumped bank stocks around the world. In London, Standard Chartered is down 6% with Barclays losing 5%.
British banking stocks have taken a hit.#SVBCollapse pic.twitter.com/OikLlyETnQ
— Mike Cosgrove (@mikecosgrove) March 13, 2023
Some US regional banks are heading for hefty falls when Wall Street opens in an hour, with First Republic Bank currently down 64% in pre-market trading.
Investors are also tearing up their forecasts for further interest rate rises, concluding that central banks will be less keen to tighten monetary policy harder. SVB’s collapse last week came after it made a loss on bonds it had bought, before prices were pushed down by higher borrowing costs.
Updated
Investors are rethinking their forecasts for further rises in interest rates after the collapse of Silicon Valley Bank, says Richard Flax, chief investment officer at European digital wealth manager Moneyfarm.
Flax explains that the markets are concluding that the US Federal Reserve may be less hawkish this month, when it sets interest rates later this month. It may now restrict itself to a quarter-point (25 basis point) rise, he says:
“With the market turmoil following the collapse of SVB, there are now heightened expectations that the Federal Reserve will be less aggressive with its monetary policy.
In light of the potential stress on the banking system, the market is now pricing a greater likelihood of only a 25 bps hike at the next meeting (from an almost “certain” 50 bps pre-SVB collapse). The market’s expectation for the peak Fed Funds rate has also fallen sharply from where we were a week ago.
The next US inflation report, due tomorrow, could also move markets, Flax adds:
While the focus will remain on the stresses in the financial system, Tuesdays CPI release will give an important indication of how prices in the real economy are moving.”
Trading in shares in Italy’s Unicredit bank were briefly halted this morning, after they fell by almost 5% in Milan.
That triggered a brief circuit-breaker pause in trading in Italy’s second-largest bank.
But trading then resumed, and Unicredit are down almost 8%.
⚠️BREAKING:
— Investing.com (@Investingcom) March 13, 2023
*UNICREDIT SHARES HALTED IN MILAN, LAST DOWN 7.5% AS SVB FUELS GLOBAL BANKING SELLOFF
🇮🇹🇮🇹 pic.twitter.com/8Um99XC9GF
Credit Suisse shares hit new low
Back in Europe, shares in Credit Suisse have dropped to a new low.
Credit Suisse shares tumbled over 12%, and were trading below 2.20 Swiss francs at one state this morning, down from Friday’s low of 2.41 francs.
The cost of insuring Credit Suisse’s bonds against default has jumped this morning too.
*CREDIT SUISSE GROUP DEFAULT SWAPS HIT RECORD AMID SVB FALLOUT
— IG (@IGcom) March 13, 2023
Shares down a further 10% to record low pic.twitter.com/aAjeRgqVCP
Victoria Scholar, head of investment at interactive investor, explains:
Despite HSBC’s rescue deal, investors are taking a cautious stance towards the banking sector compounded by the fact that this could slow the pace of central bank rate hikes, creating a headwind for banks’ net interest margins.
Updated
Concerns over America’s regional banks do not appear to have fully abated, despite last night’s efforts by US authorities to shore up confidence.
First Republic, based in San Francisco, is not the only one under pressure (still down over 50% in pre-market trading).
PacWest Bancorp of Los Angeles has dropped 27% before Wall Street opens, while Phoenix, Arizona’s Western Alliance Bancorporation is on track to fall around 47%. State regulators closed New York-based Signature Bank on Sunday.
As covered last night here, a new facility is being set up to give US banks access to emergency funds, with the Federal Reserve also making it easier for banks to borrow from it in emergencies.
Plus, Silicon Valley Bank customers in the US will get full access to their funds, not limited by the restrictions on deposit limits.
But, the US authorities did refuse to bail out SVB – ruling that shareholders and certain unsecured debtholders will not be protected.
And other banks face the same problem as SVB: if they are forced to sell assets such as government bonds due to customers taking out funds, they may take a loss (due to the fall in bond prices due to higher interest rates).
Chris Weston, head of research at Pepperstone, suggests that customers could migrate to larger, stronger banks:
“The Fed are not only addressing concerns over the bank’s asset side of the balance sheet but on the liability side, where they are essentially stepping in front of a larger bank run, which...can be devastatingly swift to bring down any institution.
“There’s likely going to be further migrations to the stronger banks and those with a large asset base and low equity will continue to see depositors divest capital.”
Michael Purves, chief executive of Tallbacken Capital Advisors, cautions:
“There are still going to be lingering questions with other regional banks.”
Eurogroup president: euro area’s exposure to SVB fallout is very limited
The head of the Eurogroup, the gathering of eurozone finance ministers, has said the collapse of Silicon Valley Bank was a reminder that risk and moments of change can happen very unexpectedly.
Eurogroup President Paschal Donohoe also told Bloomberg Television in an interview this morning that the euro area’s exposure to the fallout from the collapse of SVB is very limited.
Donohoe insisted, ahead of a Eurogroup meeting in Brussels today, that:
“We’ve a very strong regulatory and resolution framework here in Europe.
“But of course any banking development such as this does prompt questions, and of course we’ll discuss this today in the Eurogroup.”
The euro area’s exposure to the fallout from the collapse of Silicon Valley Bank is very limited, Eurogroup President Paschal Donohoe says https://t.co/FKluv2s7Rt
— Bloomberg Asia (@BloombergAsia) March 13, 2023
Nick Macpherson, the former top civil servant at the Treasury, has congratulated his former department and the Bank of England for agreeing the rescue deal for SVB UK this morning.
Macpherson says it shows that the UK’s bank resolution regime, introduced after the 2007-2008 financial crisis, is effective.
A very good outcome confirming that the recovery and resolution regime works, and that SVB UK was sufficiently well regulated to have value despite the travails of its parent. Congratulations to the Bank of
— Nick Macpherson (@nickmacpherson2) March 13, 2023
England and HMT. https://t.co/ISqUJmIpEC
*FIRST REPUBLIC BANK FALLS 60% IN PREMARKET TRADINGhttps://t.co/XXsIEJV8z6 pic.twitter.com/8e9BZ4XdBu
— Joe Weisenthal (@TheStalwart) March 13, 2023
First Republic Bank slides over 50% in premarket amid SVB fallout fears
Shares in another US lender, First Republic Bank, have more than halved in pre-market trading.
That’s despite its efforts to try to quell concern about its liquidity after the failure of Silicon Valley Bank.
First Republic said in a statement late on Sunday that it had more than $70bn in unused liquidity to fund operations from agreements that included the Federal Reserve and JPMorgan Chase & Co.
Today, we announced a further strengthening and diversification of our liquidity position. This increase in available liquidity further reinforces the safety and stability of First Republic. We are grateful to our clients for their continued support. https://t.co/eucaVOEjoy
— First Republic (@firstrepublic) March 13, 2023
It said:
“The additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. increases, diversifies, and further strengthens First Republic’s existing liquidity profile.
However, its shares are down almost 60% in pre-market trading at $34.50, having dropped 15% on Friday to $81.76.
First Republic slumps more than 60% in US premarket trading as measures taken by US authorities to calm investor concerns failed to provide relief to the regional lender’s shares. (BBG) pic.twitter.com/c8zU1gucEd
— Jimplas-Capital Management (@JimplasE) March 13, 2023
“It’s down to a sharp loss of shareholder confidence,” says Susannah Streeter at Hargreaves Lansdown to Reuters, adding:
The banks aren’t being bailed out, but depositors are, and worries about the viability of First Republic are growing... It’s highly likely that there has been a rush of more depositors withdrawing money.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
SVB’s flash crash raised questions that other similar local banks in the US could also experience liquidity issues and may not be able to pay their depositors back, unless they also start selling their probably loss-making portfolios.
So, the likes of First Republic Bank, PacWest Bancorp and Signature Bank [which was closed by regulators last night] suffered heavy losses on Friday.
Across Europe, big banks pulled indices down on Friday, as well – even though they are not expected to have similar liquidity issues as the Silicon Valley Bank. Most big banks have a diversified client base and more importantly don’t have the same exposure to tech startups, which are extremely rate sensitive.
The contagion risk remains for small banks with highly rate-sensitive clients, but the US authorities now step in to avoid contagion. They said that SVB depositors could access their money today.
Stock markets slide as market turmoil continues
European stock markets have made a very weak start to the new week, as the turmoil which began last week continues to grip the markets.
That’s despite US regulators protecting Silicon Valley Bank deposits and trying to shore up the financial system last night.
AJ Bell investment director Russ Mould says:
“Despite the best efforts of governments and regulators, the market was still very edgy on Monday as investors considered the fallout from SVB’s collapse.”
The FTSE 100 index has tumbled by 153 points, or 2%, to 7595 points. That’s its lowest level since the first week of January, and around 6% below last month’s record highs.
Financial stocks are among the fallers in London, with Standard Chartered dropping 5%, investment manager Abrdn off 4.3%, and Barclays losing around 4.5%.
Europe’s STOXX bank index has dropped by 5%, having shed 3.78% on Friday, leaving it on track for its biggest two-day fall since Russia began its invasion of Ukraine in February 2022.
Mould explains:
“There’s plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix. Little surprise people are feeling a bit spooked.
“For now, the panic which set in late last week appears to have been contained but whether the market can regain the confidence which saw the FTSE 100 hit a record high earlier this year remains to be seen.
“The funding environment for technology and start-up companies is certainly looking a lot less healthy and focus may start to turn to the asset managers and private equity funds which are invested in these firms.”
Across Europe, Germany’s DAX share index has lost 2.9% while Italy’s FTSE MIB has slumped by4.7%.
Martha Lane Fox, president of the British Chambers of Commerce, said the failure of Silicon Valley Bank is “very different” from the collapse of Lehman Brothers in 2008.
She told BBC Radio 4’s Today programme this morning that SVB UK has played an important role helping to grow the technology and life sciences industry, and the wider economy:
“It was a banker that provided extra careful services for the sector that is growing very rapidly and is demanding attention from all of us because it’s going to be a vital part of how we position ourselves in the future and our economy’s strength in the future.
“You could argue it was a single point of failure, or you could argue that it was enabling this patchwork of incredible businesses to grow quickly.
This is not a collapse because of risky management, she insisted (although SVB management have been criticised for not protecting itself better against rising interest rates).
Lane Fox adds:
In many ways it’s not similar to the banking collapse in 2008 or Lehman’s collapse or anything like that.”
Krista Griggs, head of financial services & insurance at technology giant Fujitsu, says HSBC’s decision to buy Silicon Valley Bank UK is ‘a welcome move’:
“The UK technology industry is thriving and it requires a commitment to long-term success if the country is going to achieve its ambition of becoming a scientific and technology superpower.”
“HSBC’s fast response is a welcome move that will ensure continuity for businesses at risk from the collapse of Silicon Valley Bank. It shows commitment to innovation and I expect to see more involvement from traditional banks as they look to provide stability during disruption - as well as further union between them and FinTech companies as this sector continues to rapidly evolve.
There has been a flurry of UK tech companies telling the City of London this morning the details of their exposure to Silicon Valley Bank UK, or reassuring that they’re not a customer.
Diaceutics, technology and solutions provider to the pharmaceutical industry, asked for its shares to be suspended on the London AIM market today.
It says that most of its cash was held at SVB UK, and it was unable to access those funds in recent days.
In a statement released just as news of the HSBC rescue deal broke, Diaceutics says:
As of 9 March 2023, the Company held £22.2m in cash and cash equivalents (31 December 2022: £19.8m). Of this balance, approximately £22.0m was held in SVB accounts, an ongoing requirement of its Revolving Credit Facility, with the majority (£19.8m) held at SVB UK.
Despite immediate efforts by the Company to move available funds to other banks before SVB was closed, these transactions remain pending and the Company has been unable to access any of its funds held by SVB.
This is a rapidly evolving situation and the Board remains hopeful that the funds held with SVB will become available, however it recognises that there is a risk that this may take time to resolve and full or partial recovery above the insurance limits may not materialise.
Clearly the situation did indeed evolve rapidly, with HSBC agreeing a rescue deal which means depositors money is safe.
Naked Wines says it has £14m in “a cash sweep account” under which SVB acts as custodian for 3rd party money market funds, and a $60m asset backed credit facility, which is syndicated 50-50 between SVB and Bridge Bank.
But less than £600,000 of its cash had potentially been risk at SVB accounts in the USA and UK, before authorities took action to protect depositors.
Naked Wines’ CEO Nick Devlin said day to day operations were unaffected, as Naked has £17m of cash immediately available, adding “we don’t expect to incur any loss as a result”.
Global review company Trustpilot said SVB UK was its principal banking partner, but it still had alternative banking relationships that allow it to continue to operate.
Trustpilot says it had $36m held in SVB UK, of which $18m was “currently in transfer out of SVB UK but pending confirmation”.
It also had $19m cash on deposit with another bank, and $4.5m guaranteed by the US Federal Reserve following their announcement last night (that US SVB customers will get their money in full).
Several firms released statement saying they had no exposure to Silicon Valley Bank, including e-commerce platform THG, IT firm Instem, and biotech company Roquefort Therapeutics.
Markets cut interest rate rise bets
Central banks may be less willing to raise interest rates higher, following the crisis at Silicon Valley Bank.
Policymakers could now be warier of breaking something else in the financial system, by tightening monetary policy much further.
That’s because the steep increases in borrowing costs over the last year or so have pushed up the yield (or effective interest rate) on government bonds and mortgate-backed securities, which lowers their price.
That lead to SVB suffering a $1.8bn loss when it sold its $21bn package of securities last week, following an increase in customer withdrawals.
Investors have cut their expectations for future interest rate rises on both side of the Atlantic.
For example, another quarter-point rate rise by the Bank of England this month to 4.25% is only seen as a 66% chance this morning, from an almost certainty last week. Rates are no longer expected to rise above 4.5% this year.
Expectations of future interest rate rises in the US have also been dampened, having jumped last week after hawkish talk by Federal Reserve chair Jerome Powell.
Lee Hardman, senior currency analyst at MUFG Bank, explains:
The Silicon Valley Bank crisis has taken the wind out the US dollar’s sails by highlighting risks associated with rising rates.
The run on deposits forced SVB to realize losses on their securities portfolios that triggered a further loss of confidence in bank. It has made market participants more aware again that the Fed will eventually break something if it keeps raising rates.
The pound has gained over half a cent against the US dollar this morning, to $1.21.
Updated
Dom Hallas, executive director of Coadec, a lobby group representing UK tech start-ups, says today’s deal has “saved hundreds of the UK’s most innovative companies”.
The Government deserves huge credit. From the very top, to HM Treasury who understood the challenge and gripped it, to the PRA, to the huge number of civil servants who have likely not slept since Friday. They have saved hundreds of the UK’s most innovative companies today.
— Dom Hallas (@Dom_Hallas) March 13, 2023
Shadow chancellor Rachel Reeves MP has welcomed the news that Silicon Valley Bank UK has been rescued, saying:
“That SVB has a buyer will be a relief to the entrepreneurs and the thousands of people working in the tech and start-up sectors, who woke up facing huge uncertainty this morning.
Tech and life sciences are vital to getting our economy growing again.”
Full story: HSBC to buy Silicon Valley Bank UK for £1 in government rescue deal
If you’re just tuning in….the UK government has struck a last-minute deal for HSBC to buy Silicon Valley Bank’s UK operations.
The move, announced at 7am, will save thousands of British tech startups and investors from big losses after the biggest bank failure since 2008, my colleague Kalyeena Makortoff writes.
The takeover will override the Bank of England’s initial decision to place SVB UK into insolvency, after a run on the lender that was originally sparked by fears over the a multibillion-pound shortfall on the US parent company’s balance sheet.
The US bank was closed and its assets seized by authorities on Friday.
The acquisition – which only cost HSBC £1 – followed overnight talks between Downing Street, the Bank of England and HSBC bosses including the chief executive, Noel Quinn, as authorities rushed to protect the finances of SVB UK’s 3,500 customers.
Those customers included venture capital investors and hundreds of tech startups that feared they would go bust if their deposits were wiped out.
Jeremy Hunt says SVB UK rescue was necessary to protect UK tech
Chancellor Jeremy Hunt has said the rescue of Silicon Valley Bank’s UK arm by HSBC this morning was necessary to help protect some of Britain’s most important technology companies.
Speaking to reporters, he says (via Reuters):
“We were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”
Asked about HSBC’s role, Hunt said the Treasury had been neutral as to what the solution for SVB’s UK arm was, and that his priority was to avoid using British taxpayer money.
“We were looking at all options and we needed to be sure that if the sale didn’t happen, we had other solutions ready.
Hunt also repeated reassurances that the situation with SVB’s UK arm did not pose any risk for Britain’s financial system.
“The UK banking system is extremely secure, it’s well capitalised.”
The Bank of London, the UK clearing bank that also made a rescue bid for SVB UK last night, has criticised the sale to HSBC as a “missed opportunity”.
It said it was “great news that a speedy solution” has been found for Silicon Valley Bank UK Limited, but added:
“For many, this will be seen as a missed opportunity to support competition and innovation.
“It cannot be right that once again the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position.
“Britain needs better. For our part, we at The Bank of London stand ready to serve the entrepreneurial community of the UK.”
Updated
The UK government will be extremely relieved that HSBC has stepped in to rescue SVB UK this morning, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:
After a number of offers from smaller banks, HSBC has agreed to scoop up the beleaguered UK arm of SVB, which should end the nightmare thousands of tech firms had been experiencing over the past few days.
HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition.
This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.
HSBC’s acquisition of Silicon Valley Bank UK for £1 is a welcome development for SVB’s depositors and the wider banking system, says Victoria Scholar, head of investment at interactive investor.
It means that SVB UK will avoid insolvency proceedings and its customers will be able to access deposits and banking services as normal from today. European markets look set to open higher as a crisis in the banking sector is averted for now.
She says Wall Street is set to rally today after US authorities guaranteed all deposits after Silicon Valley Bank collapse yesterday, helping to ease fears of a banking crisis.
Meanwhile in the US, regulators have approved plans to create a backstop for SVB depositors and financial institutions, providing them with access to their funds from today. Plus the Federal Reserve has announced an emergency lending facility to support US banks and reduce wider contagion. This has helped to lift US futures after Wall Street closed sharply lower on Friday with the Nasdaq down over 1.75% and the Russell 2,000 down almost 3%.
Scholar also explains how the collapse was caused:
The collapse was triggered after SVB crystallised a $1.8 billion loss on its $21 billion bond portfolio, spooking investors and customers, and sparking a run on the bank.
The tech sector lender took a view on interest rates last year and miscalculated the expected level of rate hikes from the Fed, landing the lender with heavy losses.
On top of that, the rising cost of funding and volatile financial markets which caused a dearth in IPOs made life more difficult for many of SVB’s tech start-up customers, who began withdrawing deposits, putting pressure on SVB.”
Eileen Burbidge: it's incredibly welcome news after a chaotic weekend
Eileen Burbidge, a partner at the tech venture capital firm Passion Capital, says the deal with HSBC is a ‘wonderful solution’.
Burbidge tells Radio 4’s Today programme:
It brings to the close a really chaotic weekend.
Burbidge says the collapse of Silicon Valley Bank was “extremely consequential for the tech sector”
The risk is thinking that the tech sector is its own isolated or niche ecosystem, when in fact now technology underpins all the UK economy and is involved in everything from transport to food supply, to healthcare…and everything we rely on for our daily lives.
The news that deposits are going to be guaranteed, and that banking services have been restored as of today, is obviously incredibly welcome.
Q: But what about the moral hazard question? Won’t the sector be encouraged to do risky things because they think they’ll always be bailed out?
Burbidge says not. She argues that neither SBV UK nor the UK tech sector were doing anything particularly risky before regulators took action last Friday.
SVB UK was held to the same standards as every other bank in the UK, she insists, and this morning’s sale to HSBC shows that the bank had a strong asset base.
What we had was a classic run on the bank, and actually the biggest run on a bank in history, depending on how you define it, based on how quickly funds were moved out of that bank between Thursday and Friday.
[Reminder, that bank run began when parent company SVB Financial Group announced it had made a $1.8bn loss on the sale of $21bn of securities from its portfolio, meaning it would sell $2.25bn of new shares to shore up its finances.]
Bank of England: all depositors’ money with SVBUK is safe
The sale to HSBC this morning has been taken to “stabilise SVBUK”, says the Bank of England.
The UK central bank says the deal will ensure the continuity of banking services, minimise disruption to the UK technology sector and support confidence in the financial system.
Importantly, the Bank of England and HM Treasury can confirm that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
That will be a massive relief for tech companies, who feared an ‘existential threat’ to their businesses if they had lost their funds at SVB UK.
The BoE add that the deal with HSBC means SVB UK will not now be put into insolvency. It says:
SVBUK’s business will continue to be operated normally by SVBUK. All services will continue to operate as normal and customers should not notice any changes.
Customers can continue to contact SVBUK through the usual channels and borrowers should make any loan repayments to SVBUK as normal. SVBUK staff remain employed by SVBUK, and SVBUK continues to be a PRA/FCA authorised bank.
Today’s announcement supersedes the Bank’s 10 March statement that, absent any meaningful further information, it intended to apply to the Court to place SVBUK into a Bank Insolvency Procedure. Given the emergence of a credible purchaser for SVBUK the Bank has determined that using its resolution powers for stabilising failing banks is appropriate.
No other UK banks are directly materially affected by these actions, or by the resolution of SVBUK’s US parent bank. The wider UK banking system remains safe, sound, and well capitalised.
Hunt: Deposits will be protected, with no taxpayer support
Chancellor Jeremy Hunt says customer deposits at Silicon Valley Bank UK will be “protected, with no taxpayer support” through the rescue deal with HSBC.
Hunt adds:
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
Deposits will be protected, with no taxpayer support
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise
HSBC: SVB UK customers are backed by our 'strength, safety and security'
Noel Quinn, HSBC Group CEO, is welcoming Silicon Valley Bank UK customers.
He says they can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.
Quinn explains:
“This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.
We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC. We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them.”
HSBC acquires Silicon Valley Bank UK
Newsflash: HSBC UK Bank plc is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1, after a weekend of frantic negotiations by UK officials.
In a statment to the City, HSBC says the transaction “completes immediately”. The acquisition will be funded from existing resources.
The bank adds:
As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m. SVB UK’s tangible equity is expected to be around £1.4bn. Final calculation of the gain arising from the acquisition will be provided in due course.
THE DEAL IS DONE. HSBC will acquire SVB UK.
— Coadec (@Coadec) March 13, 2023
Story here: https://t.co/mIT2orQL50
Details to come...
Here’s Sky’s Ed Conway:
NEW:
— Ed Conway (@EdConwaySky) March 13, 2023
Silicon Valley Bank's UK subsidiary has been sold to HSBC.
Depositors will be fully protected.
Will be announced by @bankofengland and @hmtreasury imminently.
Biggest firesale of a UK Bank since the financial crisis
Sky News: HSBC on brink of a deal to rescue Silicon Valley Bank UK
Important developments.
Sky News are reporting that HSBC Holdings is on brink of a deal to rescue Silicon Valley Bank UK, which would avert its insolvency.
Exclusive: HSBC Holdings is on the brink of a deal to rescue Silicon Valley Bank UK, averting the technology-focused lender's insolvency. An announcement from the company and the Treasury is imminent. More soon.
— Mark Kleinman (@MarkKleinmanSky) March 13, 2023
Updated
The UK tech sector is hoping for a similar response to the package announced in the US last night, says Russ Shaw, founder of Tech London Advocates.
Shaw told BBC Radio:
What we’re hoping for is a similar approach by the UK government here, which is called the Financial Services Compensation Scheme.
[We are hoping] the FSCS will take a similar approach to the US, which is people get that short term protection and coverage.
The sentiment here is nobody wants a taxpayer bailout.
Sunak: working to “find the best solution” to SVB collapse.
Rishi Sunak sought to reassure British businesses over the collapse of Silicon Valley Bank on Sunday night, our political correspondent Aubrey Allegretti reports.
As he flew to the US for defence talks with President Joe Biden and Australian Prime Minister Anthony Albanese, the UK PM said “our overall financial system is sound and there’s nothing to worry about there”.
He hinted an announcement was imminent, saying “we will have something to say very shortly”.
Soon after landing in San Diego, the prime minister told broadcasters he had been monitoring the situation during the 15-hour flight, speaking to the chancellor and keeping in touch with regulators including the Bank of England.
Rishi Sunak says he’s been working through the 15-hour plane journey to San Diego, speaking with the chancellor and Bank of England to “find the best solution” to SVB collapse.
— Aubrey Allegretti (@breeallegretti) March 13, 2023
He says people should be reassured our financial system is sound and there’s nothing to worry about.
Sunak stressed he understood “the concern that people have got around what’s going on with SVB”.
He added he was focused on “finding the best solution” that would “continue to support our world-beating technology sector and all the high-skilled jobs that it supports”.
FT: UK races to finalise sale of Silicon Valley Bank unit before markets open
British ministers and the Bank of England are racing to conclude a private sale of Silicon Valley Bank’s UK arm before markets open his morning, after frantic all-night talks.
People briefed on the negotiations said the potential acquirer was holding conference calls with the BoE through the night, the Financial Times reports.
“The deal’s not done but we’re hoping for a market open announcement,” one person said.
A sale of the stricken bank is the preferred choice of Jeremy Hunt, UK chancellor, since it would hopefully avoid the government having to make a big intervention to protect depositors.
More here: UK races to finalise sale of Silicon Valley Bank unit before markets open
Full story: US guarantees all deposits after Silicon Valley Bank collapse
US financial regulators rolled out emergency measures Sunday night to stem potential contagion from the collapse of Silicon Valley Bank, my colleague Ed Helmore reports.
The measures include ensuring that depositors with the failed bank would have access to all their money on Monday morning.
Regulators announced the measure in a joint statement from the treasury secretary, Janet Yellen, the Federal Reserve chair, Jerome Powell, and the Federal Deposit Insurance Corporation (FDIC) chair, Martin Gruenberg.
They said in a statement:
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,”
The announcement came as Signature Bank was closed on Sunday by regulators. Depositors in Signature would also be made whole, the statement said.
Capital Economics analyst Paul Ashworth said:
“Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age.
But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”
More here:
The Tony Blair Institute warned last night that UK tech businesses needed assurances by this morning that their money is safe, following the Silicon Valley Bank collapse
TBI executive director for policy, Sam Sharps, said:
“This is a crucial moment for all of us who care about the UK tech sector. The problem didn’t start here but we need a British solution that protects the jobs of the future and our best chances for economic growth.
It’s clear that unless businesses have the assurance by morning that their money is safe, the consequences could be severe. This means we can’t afford to wait and see - this is an emergency and we can’t be satisfied with short term fixes.”
The future of SVB presents a profound risk for the UK tech sector.
— Benedict Cooney (@benedictcooney) March 12, 2023
Without a solution, jobs, investment and companies that will be important to the economic health of the UK could be decimated.
Short response from @jeegarkakkad and me. 1/
To protect depositors and ensure companies don’t pay the price, the best option will be an acquisition and recapitalisation, such as reports regarding Barclays. However, other options to ensure a guarantee cannot be off the table.
— Benedict Cooney (@benedictcooney) March 12, 2023
This is a moment of truth for government's ambitions for science and tech and the speed and decisiveness with which this happens will be critical.
— Benedict Cooney (@benedictcooney) March 12, 2023
A short-term fix is necessary, but longer-term solutions to strengthen our ecosystem need to happen.https://t.co/I2eCkp59XJ
Introduction: UK tech firms await news after Silicon Valley Bank collapse
Good morning.
British tech firms with money in the UK arm of Silicon Valley Bank are anxiously waiting whether a rescue deal will be agreed today to protect them, after SVB collapsed late last week.
The Treasury and the Bank of England have been working through the weekend, amid warning that the UK’s technology sector could suffer significant damage unless a package was agreed fast.
Dozens of early-stage tech companies in the UK warned the government that the sector faced “an existential threat”, given so many start-ups banked with SVB UK.
Chancellor Jeremy Hunt has been focused on finding ways to keep cash flowing to tech groups. On Sunday morning, Hunt told Sky News that the collapse of SVB did not pose a systemic risk to the financial system.
But, he waned 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, saying:
…there is a serious risk to our technology and life sciences sectors.
“It happens to look after the money of some of our most promising and exciting businesses.
Last night, one offer was announced for the UK branch of SVB. A consortium of investors led by The Bank of London, a UK clearing bank, has submitted a formal bid to the Treasury.
Anthony Watson, group chief executive and Founder of The Bank of London said:
“Silicon Valley Bank cannot be allowed to fail given the vital community it serves.
This is a unique opportunity to ensure the UK has a more diversified banking sector, whilst allowing continuity of service to SVB’s UK client base. It would be deeply disappointing for this moment to lead to further consolidation of power among big banks.”
US regulators took action last night to shore up confidence in America’s banking system, after the collapse of Silicon Valley Bank – which was shut down by US regulators on Friday in the largest failure of a US bank since 2008.
The Federal Reserve and the US Treasury announced that US Silicon Valley Bank depositors would get full access to their money today, effectively ripping up the limit on how much money was protected if a bank failed.
Policyakers also announced the closure of another US bank, New York-based Signature, and also unveiled new emergency funding measures to help banks meet their depositors’ needs.
The US move raises concerns over ‘moral hazard’. But billionaire hedge fund manager Bill Ackman welcomed the intervention, warning that without it “we would have had a 1930s bank run continuing first thing Monday”.
This was not a bailout. During the GFC, the gov’t injected taxpayer money in the form of preferred stock into banks. Bondholders were protected and shareholders were diluted to varying degrees. Taxpayer money was put at great risk. Many people who screwed up suffered minimal to… https://t.co/mjwcnVRV9X
— Bill Ackman (@BillAckman) March 13, 2023
The agenda
9.30am GMT: Changes to UK inflation basket of goods and services
2pm GMT: Eurozone finance ministers hold Eurogroup meeting
Updated
