UK online retailers were among those moving to reassure investors this morning in relation to their exposure to Silicon Valley Bank (SVB) UK, after the failure of its US parent company. The failure of Silicon Valley Bank in the US following a bank run had been set to result in its UK arm going into insolvency on Sunday evening, representing a threat to the technology and life science businesses that banked with its UK arm. However, HSBC has now stepped in to buy SVB UK for £1 – and says the deal is a good one for it.
“This acquisition makes excellent strategic sense for our business in the UK,” says Noel Quinn, HSBC group chief executive. “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 back by the strength and security of HSBC. We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them.”
The UK’s Financial Conduct Authority (FCA) also confirmed this morning that the SVB UK would remain authorised by the FCA and the Prudential Regulation Authority (PRA), and would continue to operate as normal, with depositors’ money safe as a result of the deal.
The announcement came at 7am this morning, following an anxious weekend for the UK customers of SVB bank, which had served the technology community in the US for 40 years, since 1983, and opened its UK arm in 2010.
The UK Chancellor of the Exchequer Jeremy Hunt is reported by Reuters to have described the situation as one where “we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”
The failure of the US bank was the largest since the 2008 banking crisis, and came after a bid to raise $2.25bn (£1.9bn) by selling assets including government bonds last week caused a run on the bank. The US bank has been shut down and its depositors have been reassured by the US government that deposits at the bank are safe.
Online retailers set out their situation
UK online wine retailer Naked Wines is among those now looking to identify potential new lenders in relation to its US lending. It had a $60m asset backed credit facility syndicated 50/50 between SVB and Bridge Bank which remains “an important part of our financing arrangements” in relation to providing liquidity. However, it says it had not expected to need to draw down any more of this money in relation to its current financial plans. Naked Wines says in a statement to the London Stock Exchange this morning: “We have engaged in direct discussions with Bridge Bank who remain supportive of the group and have indicated their desire to continue providing their services. While awaiting information from SVB and their successor business as to their intentions the group has commenced a process to identify potential new financing partners.”
The company also says that although SVB was one of its banking partners, with a variety of accounts in both the UK and the US, it did not expect any losses or any effect on day-to-day operations. Those accounts contained £0.6m in cash, while £14m was held in a cash sweep account under which SVB was custodian for third party money market funds.
Nick Devlin, group chief executive of Naked Wines, says: “We are announcing today that day to day operations are unaffected and we don’t expect to incur any loss as a result. Whilst this situation remains fluid, we maintain a robust balance sheet with approximately £185m of stock and £17m of immediately accessible cash. We remain focussed on delivering for our customers and winemakers and continuing to execute against the pivot to profit strategy announced in October.”
In other statements, Moonpig says it had no cash on deposit with SVB UK although the bank was one of 10 lenders to the group. THG, whose brands include LookFantastic, said it had no exposure to SVB, either through cash deposits or debt facilities.
However the failure of SVB and a small number of other US banks highlights continuing investor anxiety centred around rising interest rates and their effect on the value of investments such as bonds. This morning the FTSE 100 index of leading UK firms is down by 2.2% at the time of writing, with bank shares amongst those falling most sharply.
Walid Koudmani, chief market analyst at online investment platform XTB.com, says: “Markets remain very reactive and susceptible to further developments and could continue to be volatile throughout the week as a major domino effect could cause widespread risk-off moods leading to further losses for stocks and riskier assets.”
LookFantastic is ranked Leading in RXUK Top500 research, while Moonpig is ranked Top350.