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Friday, March 24, 2023

Tech groups move to reassure investors as HSBC swoops on SVB UK

Swathes of London-listed technology firms rushed to reassure investors on Monday morning after it was confirmed that HSBC would buy collapsed Silicon Valley Bank’s UK arm.

The Government- and Bank of England-facilitated £1 deal means that all customer deposits have been protected, while the lender’s customers will be able to access their cash and banking services as normal from today.

HSBC Group boss Noel Quinn told investors the deal makes ‘excellent strategic sense for our business in the UK, adding that SBV UK customers can be ‘safe in the knowledge that their deposits are backed by the strength, safety and security’ of the banking giant.

SBV was a key bank for many tech firms now scrambling to understand their exposure

The collapse of its parent company was triggered after the tech investor crystallised a $1.8billion (£1.5billion) loss on a bond portfolio marked at $21billion, thereby spooking investors and customers, and sparking a run on the bank.

Head of investment at Interactive Investor Victoria Scholar said: ‘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.’

The UK Government scrambled to limit the fallout from the crisis at SVB, which threatens to destabilise swathes of Britain’s tech sector.

HSBC said SVB UK had loans of around £5.5billion and deposits of around £6.7billion, and its tangible equity is expected to be around £1.4billion

The bank added: ‘Final calculation of the gain arising from the acquisition will be provided in due course. The assets and liabilities of the parent companies of SVB UK are excluded from the transaction.’

SBV UK made pre-tax profits of £88million in the year to 31 December.

Concerns about the impact of SBV’s collapse on the UK tech sector sparked a flurry of updates to the London Stock Exchange on Monday as groups moved to reassure investors.

Polarean Imaging has been forced to request that trading of its ordinary shares on AIM be temporarily suspended ‘while it seeks further clarification’ of its exposure to SVB’s demise.

The medical technology company said it had a total cash balance of $13.9million on 28 February 2023, $12.4million of which is held through SVB with $9.8million of that figure held in money market mutual fund accounts operated by other financial institutions. It has $1.5million of cash held at Wells Fargo.

‘In addition, the company has $1million in a SVB checking account and $1.6million in a SVB sterling checking account. The United States Federal Deposit Insurance Corporation guarantees $250,000 of deposits in the US.’

Naked Wines said it does not expect to be hit with a loss from the failure of SVB, which it banked with, adding that it had ‘robust liquidity’ of £32million in gross cash.

Group chief executive Nick Devlin said: ‘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 £185million of stock and £17million of immediately accessible cash.’

AIM-listed RWS Group said it ‘believes’ that it has ‘limited exposure to SVB’, reiterating the outlook provided in its recent AGM statement, with the firm continuing to expect to deliver full-year adjusted pre-tax profits in line with market expectations.

It added: ‘The group remains well placed to continue to deliver on its strategy with the additional benefit of a strong balance sheet, having had net cash of £71.9m as at 30 September 2022.’

 This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day

Susannah Streeter, Hargreaves Lansdown 

Chief executive of tech provider to the pharmaceutical industry Diaceutics Peter Keeling said: ‘We are working swiftly to ensure the financial resilience of the business, in the face of these unprecedented events.

‘We continue to trade strongly, expanding our relationships with customers while growing our considerable new business pipeline of opportunities and a strong debtor and order book. We hope to be in a position to lift the suspension of our shares as soon our funding position is secured.’

Meanwhile, THG, Cornerstone FS, Auction Technology Group and Science Group were among the companies to say they had no material exposure to the bank.

Head of money and markets at Hargreaves Lansdown Susannah Streeter said HSBC’s takeover for SBV UK ‘should end the nightmare thousands of tech firms had been experiencing over the past few days’.

She added: ‘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.

‘SVB was considered to be the lifeblood for the tech industry, offering facilities start-ups found hard to access elsewhere in the market, so although the immediate liquidity nightmare looks set to be lifted, worries will still linger about banking options ahead.’

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