Business
HSBC swoops in to rescue UK arm of Silicon
HSBC has swooped to buy the UK arm of collapsed US Silicon Valley Bank (SVB), bringing relief to UK tech firms who warned they could go bust without help.
Customers and businesses who had been unable to withdraw their money will now be able to access it as normal.
The government and the Bank of England led the talks and worked through the night to scramble together the deal, which involves no taxpayer money.
HSBC said it paid just £1 for the SVB’s UK arm.
Speaking to the BBC, HSBC boss Noel Quinn said the deal had been “too good an opportunity to miss” and had ensured “a crisis in one institution did not become a systemic crisis”.
Silicon Valley Bank – which specialised in lending to technology companies – was shut down by US regulators on Friday in what was the largest failure of a US bank since 2008.
Its collapse sent shockwaves across the tech industry over the possible impact it could have on businesses, with some firms telling the BBC they could go bust if deposits were not secured.
With fears over how firms would be able to access cash on Monday morning, frantic talks were held between Chancellor Jeremy Hunt, the prime minister, the Bank of England governor, HSBC bosses and civil servants to find a solution.
The Bank of England said no other UK banks had been “materially affected” by SVB’s collapse and said the banking system remained “safe, sound, and well capitalised”.
Although the UK arm of SVB was small with just over 3,000 business customers, its collapse would have presented a risk for a sector which the government views as pivotal to the UK’s future economic success.
Mr Hunt said some of the firms only had bank accounts with SVB UK, “so for that reason 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”.
However, he added there was “never a systemic risk to our financial stability in the UK”.
Toby Mather, chief executive and co-founder of Lingumi, an education technology start-up, said 85% of its cash was tied up with the bank and he had had a very “anxious weekend”.
“We had enough money in bank accounts outside the UK and enough revenue coming through each week from our customers that we could look our staff in the eyes at nine o’clock this morning and say we can make payroll in two weeks, but it would have been very uncertain from then”, Mr Mather said.
Sebastian Weidt, chief executive of Universal Quantum, a tech company which employs about 40 people and held all its funds with SVB, said the deal was a “huge relief” after an “unbelievably stressful” few days.
Although its US parent was in financial trouble, Silicon Valley Bank UK was in reasonable financial health when it was bought for £1 by HSBC.
It had adequate capital and was making reasonable profits. Bank of England sources confirmed this weekend’s intervention was more a preventive strike before the collapse of its US parent sparked mass withdrawals from the UK business.
What that means is that HSBC got one hell of a deal which it owed to its size and strength – with regulators confident that Europe’s largest bank could easily take on any risk from SVB UK’s customers.
It seems the only thing wrong with SVB UK was its name. While not a Lehman Brothers moment, what the collapse of SVB US has highlighted is that many banks are riskier than they look on paper as they have all sustained losses on their investments in government bonds as interest rates have soared – pushing their value down.
One reason why bank shares are lower again on Monday as that thought sinks in with jittery investors.
What went wrong at Silicon Valley Bank?
The rescue deal for the UK arm comes after the US agreed a rescue deal for customers in the US bank, with all depositors fully protected.
SVB specialised in lending to start-up firms, and the company served nearly half of US venture-backed technology and healthcare companies that had listed on stock markets last year.
The firm was under pressure as higher interest rates made it harder for its customers to raise money through private fundraising or share sales. More clients were withdrawing deposits in a trend that snowballed last week.
The bank collapsed in the US on Friday after failing to raise enough money to plug losses from the sale of assets, mainly US government bonds, that were affected by higher rates.
The knock-on impact on SVB’s UK arm sparked fears it could lead to the collapse of many smaller UK tech firms, with more than 200 tech bosses signing a letter calling for the government to step in.
Former investment banker Sir Philip Augar said the UK government and regulators had a “good weekend in actually avoiding a crisis”, but warned there was an irony in the collapse of SVB just as the government was considering “slackening” regulations in the financial services industry.
“It shows that it’s a dangerous industry that can cause damage to the whole economy if it’s not controlled properly,” he said.
“It has the capability of delivering a nasty shock.”
While the deal with HSBC was broadly welcomed, the Bank of London – a UK clearing bank – said it was a “missed opportunity”.
The bank, which was among firms that had put forward a rescue bid for SVB UK, said: “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.”
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The prospective new owner of Royal Mail has said he will not walk away from the requirement to deliver letters throughout the UK six days a week, as long as he is running the service.
“As long as I’m alive, I completely exclude this,” Czech billionaire Daniel Kretinsky told the BBC.
Mr Kretinsky has had a £3.6bn offer for Royal Mail accepted by its board.
Shareholders are expected to approve the deal in the coming months, but the government also has a say over whether it goes ahead.
Currently the Universal Service Obligation (USO) requires Royal Mail to deliver letters six days a week throughout the country for the same price. But questions have been raised over whether the service could be reduced in the future.
In an exclusive interview with the BBC, Mr Kretinsky also said he would be willing to share profits with employees, if given the go-ahead to buy the group.
However, he appeared to reject the idea of employees having a stake in Royal Mail, which unions have called for in exchange for their support.
The Royal Mail board agreed a £3.6bn takeover offer from Mr Kretinsky in May for the 500-year-old organisation, which employs more than 150,000 people. Including assumed debts, the offer is worth £5bn.
But because Royal Mail is a nationally important company, the government has the power to scrutinise and potentially block the deal.
As well as keeping the new government on side, Mr Kretinsky also faces the task of convincing postal unions that the proposed deal will benefit employees.
The USO is a potential sticking point for both the government and unions.
Royal Mail is required by law to deliver letters six days a week and parcels five days a week to every address in the UK for a fixed price.
How well this has actually been working in practice is a different matter. Ten years ago, 92% of first class post arrived on time. By the end of last year it was down to 74%, according to the regulator Ofcom.
Last year the regulator fined Royal Mail £5.6m for failing to meet its delivery targets.
Royal Mail has been pushing for this obligation to be watered down. It wants to cut second class letter deliveries to every other weekday, saying this will save £300m, and lead to “fewer than 1,000” voluntary redundancies.
‘Unconditional commitment’
Mr Kretinsky has committed in writing to honouring the USO, but only for five years.
And after that, in theory, the new owners could just walk away from it.
However, Mr Kretinsky told the BBC: “As long as I’m alive, I completely exclude this, and I’m sure that anybody that would be my successor would absolutely understand this.
“I say this as an absolutely clear, unconditional commitment: Royal Mail is going to be the provider of Universal Service Obligation in the UK, I would say forever, as long as the service is going to be needed, and as long as we are going to be around.”
Mr Kretinsky added that the written five-year commitment was “the longest commitment that has ever been offered in a situation like this”.
Another potential stumbling block for the deal, however, is how the company will be structured.
Unions would like to see the company renationalised, but Dave Ward, general secretary of the Communication Workers Union (CWU), told the BBC that would be “difficult in the current political and economic environment”.
Instead, what the CWU is pushing for is “a different model of ownership” – that is, where the employees part-own the business.
To get its support for the takeover, the union wants employees to share ownership of the company, along with other concessions including board representation for workers.
It says profit sharing is “not going to be enough to deliver our support and the support of the workforce”.
If the union doesn’t get what it wants, it won’t rule out industrial action, Mr Ward said. Its members went on strike in 2022 and 2023.
Although Mr Kretinsky said he is “very open” to profit sharing, he is not in favour of shared ownership.
“I don’t think the ownership stake is the right model,” he said. “The logic is: share of profit, yes, [but an] ownership structure creates a lot of complexity.
“For instance, what happens if the employee leaves? He has shares, he is leaving, he is not working for the company, he [still] needs remunerating.”
Mr Kretinsky said he didn’t want to create “some anonymous structure” but instead “remunerate the people who are working for the company, and creating value for the company”.
The union is also concerned about job losses and changes to the terms and conditions of postal workers’ contracts.
Mr Kretinsky has guaranteed no compulsory redundancies or changes in terms and conditions but only until 2025.
“If we are more successful, and we have more parcels to be delivered, we need not less people, but we need more people,” he said. “So really, job cuts are not part of our plan at all.”
He said if the management, union and employees work together, “we will be successful”.
Another concern is the potential break-up of the business.
The profit for Royal Mail’s parent company last year was entirely generated by its German and Canadian logistics and parcels business, GLS. Royal Mail itself made a loss.
Mr Kretinsky has promised not to split off GLS or load the parent company with excessive debt, although borrowings will rise if the deal goes through.
But he has a way to go to convince the CWU.
“I can’t think of any other country in the world that would just just hand over its entire postal service to an overseas equity investor,” Mr Ward of the CWU said.
However, Mr Kretinsky said that the postal unions “do understand that we are on the same ship, and that we need this ship to be successful, and that if we are there, we don’t have any real problems to deal with, because the sky is blue, and it’s blue for everybody.”
The union cannot stop this deal but the government can block it under the National Security and Investment Act.
Business Secretary Jonathan Reynolds has said he will scrutinise the assurances and guarantees given and called on Mr Kretinsky to work constructively with the unions.
Mr Kretinsky may say that he and the unions are ultimately on the same ship but, as things stand, they are not on the same page.
Who is Daniel Kretinsky?
Daniel Kretinsky started his career as a lawyer in his hometown of Brno, before moving to Prague.
He then made serious money in Central and Eastern European energy interests.
This includes Eustream, which transports Russian gas via pipelines that run through Ukraine, the Czech Republic and Slovakia.
He then diversified into other investments, including an almost 10% stake in UK supermarket chain Sainsbury’s and a 27% share in Premier League club West Ham United.
The Czech businessman is worth about £6bn, according to reports.
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