The FTSE 100 tumbled today as bank stocks suffered despite the HSBC buying the UK arm of collapsed US lender Silicon Valley Bank.
The UK’s flagship index was down around 2 per cent in the wake of the government-brokered rescue – announced by Jeremy Hunt shortly before markets opened.
The Chancellor insisted all deposits had been protected, and customers will be able to access their deposits and banking services as normal from today.
He stressed that the financial system was ‘resilient’ and no taxpayer funding had been deployed. The transaction was ‘facilitated’ by the Bank of England in consultation with the Treasury, using powers introduced after the 2008 Credit Crunch.
But concerns about spread remain, with regulators announcing yesterday that New York-based Signature Bank had also failed and was being seized.
Banks were heavily lower on the FTSE 100 after steep falls on Friday, with shares in Standard Chartered dropping 4 per and Lloyds down 4 per, while NatWest and HSBC were 3 per cent lower.
Other financial stocks were also caught up in the rout, with investment giant M&G leading the FTSE 100 fallers with a 4 per cent drop and investment manager Abrdn down 4 per cent. Insurers such as Aviva, Prudential and Legal & General were hit.
The picture was similarly gloomy across Europe, with the Dax in Germany 1.7 per cent lower and France’s Cac 40 off 1.7 per cent
The crisis erupted when California-based parent company Silicon Valley Bank imploded and had its assets seized by US regulators on Friday – the largest failure of a bank since the financial crisis.
Chancellor Jeremy Hunt (pictured jogging near Downing Street this morning) has revealed that Silicon Valley Bank UK had been sold to HSBC
The FTSE 100 opened marginally down shortly after the news was announced
The US government acted to head off banking sector contagion after the failure, protecting all deposits.
The Bank of England then ordered the UK subsidiary of SVB into insolvency from last night.
But that left more than 200 small British tech firms facing potentially catastrophic cashflow problems, with an estimated £2.5billion of capital in SVB.
HSBC is thought to have bought the UK arm for a nominal sum, taking on its liabilities.
Mr Hunt said: ‘The UK’s tech sector is genuinely world-leading and of huge importance to the British economy, supporting hundreds of thousands of jobs.
‘I said yesterday that we would look after our tech sector, and we have worked urgently to deliver on that promise and find a solution that will provide SVB UK’s customers with confidence.
‘Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order.
California-based parent company Silicon Valley Bank imploded and had its assets seized by US regulators on Friday – the largest failure of a bank since the 2008 financial crisis
‘HSBC is Europe’s largest bank, and SVB UK customers should feel reassured by the strength, safety and security that brings them.’
Mr Hunt told broadcasters the UK’s banking system is ‘resilient’.
‘We always have to watch everything that’s happening everywhere in the world when it comes to financial stability,’ he said.
‘But what I would say is the Bank of England is very clear – the UK banking system is extremely secure, it’s well capitalised.
‘And I think we demonstrated that resilience by what was happening over the weekend and the fact that we were able to come up with a solution so quickly.’
All deposits are ‘safe and secure’ following the sale of Silicon Valley Bank UK to HSBC, the Bank of England said.
In a statement, the BofE said: ‘The Bank of England (Bank), in consultation with the Prudential Regulation Authority (PRA), HM Treasury (HMT) and the Financial Conduct Authority (FCA), has taken the decision to sell Silicon Valley Bank UK Limited (‘SVBUK’), the UK subsidiary of the US bank, to HSBC UK Bank Plc (HSBC).
‘HSBC is authorised and supervised by the PRA and the FCA.
‘This action has been taken to stabilise SVBUK, ensuring the continuity of banking services, minimising disruption to the UK technology sector and supporting confidence in the financial system.
Jeremy Hunt announced the sale of the SVB subsidiary this morning before markets opened
‘The Bank and HMT can confirm that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
‘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.’
JP Morgan had also been among the parties exploring buying the bank’s British operations, Sky News previously reported.
Oaknorth Bank, a business lender founded by former Tory donor Rishi Khosla, had also been in takeover talks, the PA news agency understands.
There was also interest from The Bank of London and Abu Dhabi state-backed investment vehicle ADQ, according to Sky.
HSBC chief executive Noel Quinn said: ‘This acquisition makes excellent strategic sense for our business in the UK.’
A survey of 31 venture capital funds, which hold thousands of investments in UK tech and science firms, found that 34 per cent of their portfolio companies – amounting to 336 – have accounts with bank.
More than 200 of those had faced short or long-term cashflow risk, according to the data from BVCA – the industry body representing venture capital investors – had SVBUK collapsed.
Around £2.5billion of capital from these firms is locked in the lender.
The Coalition for a Digital Economy (Coadec), a non-profit campaigning for policies to support digital start-ups, had previously warned that a collapse of SVBUK could have had a significant impact on these types of companies.
Many other businesses were feared to be affected with the Times newspaper reporting that more than 3,000 firms have around £7 billion in deposits with with the UK subsidiary.
Speaking before the HSBC deal, Mr Hunt had warned the tech and science sectors were at ‘serious risk’, but said there was no risk to the UK’s financial system as a whole.