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The collapse of the SVB. The UK branch of SB UK was sold for £1

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The collapse of the SVB bank in the United States caused a lot of confusion in the home country and had an impact on the global markets. The institution that financed startups from Silicon Valley also had its British branch, for which Prime Minister Rishi Sunak was looking for a buyer. In this way, he wanted to prevent further damage to the technology sector.

The Financial Times wrote about the search for a buyer for the British branch of SVB by the UK government. On the day when Bank England declared SVB UK insolvent and had almost £7 billion in deposits (approximately $8.42 billion).

The first reports about the sale of SVB UK indicated that the bank was to be sold to a buyer from the Middle East.

However, according to Reuters, another buyer has been found. On Monday, SVB UK was bought for a symbolic pound by HSBC.

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A deal that sees one of the world’s biggest banks, with $2.9 trillion in assets, takes under its wing the doomed arm of a tech lender in the UK has ended a hectic weekend of talks between the government, regulators and potential buyers.

“HSBC is the largest bank in Europe and SVB UK customers should feel more confident with the power and security it provides them,” said British Finance Minister Jeremy Hunt. – We faced a situation where there was a risk that some of our most important companies – our most strategic companies – will be destroyedand that would be extremely dangerous,” Hunt told reporters.

A Bank of England representative said the sale was arranged to strengthen confidence in the financial system and minimize any impact for UK tech companies. He stressed that deposits at SVB UK are safe as a result of the sale.

“On the face of it, it seems like a good deal,” said Richard Marwood, senior fund manager and HSBC investor in Royal London Asset Management. – SVB lacked liquidity and depositor confidence – HSBC has both – added.

The collapse of the SVB bank

Silicon Valley Bank (SVB) came under federal scrutiny on Friday after it was unable to withdraw funds to its customers. It was the 16th largest bank in the United States, and its failure was the largest since 2008.

As Przemysław Kwiecień, chief economist of the XTB Brokerage House, notes in an interview with TVN24.pl, this bank “fell into ticks”. It was a bank focused on technology companies that experienced a very good period in 2021 and raised a lot of capital.

– As a result, they made many deposits in the bank. The bank later invested those deposits in U.S. government bonds, which were expensive at the time because of the Fed’s loose monetary policy. The situation has changed because of interest rate increases he explained, adding that as a result “the bank fell into the trap“.

However, now Silicon Valley companies can no longer easily raise capital because the market situation has changed. When it was harder for them to obtain money to finance their activities, they turned to withdrawing funds from accounts at SVB. And here the problem arose, because the bank began to run out of money. That’s because he spent the money on government bonds, and the recent interest rate hikes by the US central bank translated into a drop in their prices. In order to be able to withdraw money to customers, he had to start selling assets at a loss.

– Therefore, it suddenly turned out that its capitals are too small, it was not possible to obtain financing and the bank was rapidly heading for bankruptcy – Kwiecień explained.

Main photo source: Sundry Photography / Shutterstock.com



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