Britain’s chancellor is preparing a dramatic intervention to provide a lifeline to dozens of tech companies as he seeks to contain the damage from the collapse of Silicon Valley Bank.
Jeremy Hunt said on Sunday there was ‘serious risk’ for tech and life sciences companies using Britain’s SVB bank, with senior founders warning of ‘carnage’ if they are unable to to pay salaries and bills in the coming week.
The government spent the weekend trying to sell SVB UK and putting in place a relief plan to support businesses that had deposits trapped in the struggling lender. Hours after US regulators shut down California-based SVB on Friday in the country’s biggest bank failure since 2008, the Bank of England announced it would have to put the group’s separate UK banking unit on hold. bankruptcy, triggering the weekend selling process.
Hunt ruled out a bailout of the UK arm of SVB and instead focuses on maintaining cash flow to technology groups. If a buyer cannot be secured, government officials and regulators are working on a bailout to provide guarantees for banks to offer new loans to businesses with money tied up in SVB accounts.
The program will be overseen by the state-backed British Business Bank, according to several people familiar with the talks. The Financial Conduct Authority asked banks to participate in the scheme, according to a person familiar with the discussions, and told them they could take on customers quickly without following the usual customer due diligence rules since these Customers will have already gone through SVB’s onboarding processes, which the FCA has reviewed and found no issues.
However, government officials said the program was not finalized and a number of details needed to be ironed out before markets open on Monday morning. “There is a wide range of options under consideration,” said a Treasury insider, adding that a sale by the British bank would be the preferred outcome.
Several people familiar with the government’s attempts to negotiate a sale said that a buyer from the Middle East was one of the leading bidders, in a move reminiscent of bailouts after the 2008 financial crisis.
SVB UK has 3,300 UK customers, including start-ups, venture capital-backed companies and funds, according to people familiar with the bank, although many have deposits below the £85,000 threshold covered by the financial insurance scheme. The British government has declared in December that the country was home to “more than 85,000 startups and scale-ups”.
Asked if he would guarantee 100% of deposits, Hunt told the BBC’s Laura Kuenssberg: ‘We want to find a way that minimizes – or if possible – avoids any losses to these incredibly promising companies.
Meanwhile, Prime Minister Rishi Sunak repeated the Bank of England’s assertion that the collapse of Britain’s SVB bank did not pose “a risk of systemic contagion”.
But he told reporters ahead of a defense summit in the UK, US and Australia: ‘We are working to recognize the anxiety and concerns of bank customers and to make sure we can work to find a solution that secures operational cash and people’s cash. flow needs.
He said the Treasury was working “at pace” to deliver a plan. Asked if he was confident BoE Governor Andrew Bailey was overseeing a strong regulatory environment for UK banks, Sunak said, “Yes.”
Hunt said he had talks with Bailey and Sunak late in the day on Saturday. He wants to have a final plan in place by Monday.
Tech companies, many of which tried to withdraw their money on Friday, risk losing their deposits above £85,000 if SVB is placed in the BoE’s resolution regime. The SVB said it had been informed that the Prudential Regulatory Authority planned to start resolution measures “on Sunday evening, unless there was an intermediate event”.
Hundreds of UK-based tech executives and investors urged Downing Street to intervenewarning that many businesses faced an ‘existential threat’ because they did business with SVB’s UK unit.
Sunak says he wants to make Britain ‘the next Silicon Valley’ and, according to government insiders, he is determined to contain the fallout for the tech sector from the bank’s collapse.
On Saturday, more than 200 startup founders and executives signed an open letter to Hunt, warning that “the majority of us as tech founders are running numbers to see if we are potentially technically insolvent.” . By Sunday the number had risen to more than 300, with signatories saying they employed more than 15,000 people and had raised venture capital funds totaling £5.5billion.
A separate group of at least 30 venture capital funds with a presence in the UK have also pledged their support for SVB, in the event of a bailout, including Accel, Sequoia Capital, Index Ventures, Atomico, LocalGlobe and General Catalyst.
“In the event that SVB-UK were to be purchased and capitalized appropriately, we would strongly support and encourage our holding companies to resume their banking relationship with them,” the VCs said.
Many UK start-ups have done business with SVB because it offered start-up debt that traditional lenders would not. The terms of these loan agreements often included an obligation to keep cash on deposit with the SVB. Some venture capitalists claim that there are fewer alternatives to SVB in the UK than in the US.
“This is a real crisis moment for UK start-ups,” said Dom Hallas, executive director of Coadec, a lobby group representing UK-based tech companies. “Without a clear way forward by Monday, the risk will increase. It is essential that the government has a plan in place by then.
Reporting by George Parker, Daniel Thomas, Tim Bradshaw, Laura Noonan, Stephen Morris, Ivan Levingston, Michael O’Dwyer and Anjli Raval