Bank building.
Image: Pefkos/Adobe Stock

Following the sudden collapse of the Silicon Valley Bank in the U.S., HSBC Holdings has sealed the purchase of the U.K. arm of SVB for £1 ($1.21 USD). The deal, which came after protracted hours of negotiations involving the U.K. government, regulators and a consortium of private equity firms, was a move to save U.K. tech startups from an impending implosion.

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U.K. tech firms’ cash crunch

After the California-based Silicon Valley Bank could no longer meet withdrawal demands in the U.S., the possible collapse of SVB UK — which reportedly has about 3,300 U.K. clients, including startups, venture-backed companies and funds — raised fears for Britain’s tech and life sciences industries.

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U.K. tech firms had experienced a degree of cash crunch, which made some unable to access the funds they had in SVB UK. Daily Mail reported that tech companies in the U.K., including Pinterest and online retail giant Shopify, were affected as they struggled to make withdrawals for payroll.

The situation forced the Bank of England to release a statement on March 10 about its readiness to apply to the Court to place SVB UK into a Bank Insolvency Procedure if there was no significant intervention.

However, with HSBC stepping in, tech leaders and startup founders are expected to continue banking as usual as all deposits are secured.

“This action has been taken to stabilize SVB UK, ensuring the continuity of banking services, minimizing disruption to the U.K. technology sector and supporting confidence in the financial system,” the Bank of England stated in a press release after the deal was sealed.

“This acquisition makes excellent strategic sense for our business in the U.K.,” said HSBC Group CEO Noel Quinn in a statement. “It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the U.K. and internationally.

“We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the U.K. and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.”

To what extent was the U.K. tech industry affected?

SVB UK operated as a tech-friendly financial institution, helping out with lending and savings for many tech firms in the U.K. According to The Economic Times, about 16 tech and life sciences companies in Europe have disclosed over £156.10 million ($190 million USD) in exposure to SVB in the U.K. and the U.S. In the U.K., some of these companies were affected before the HSBC takeover.

Trustpilot Group, a global review platform, confirmed that the company could not transfer $18 million from the total money held in SVB UK. Another tech company, Diaceutics, could not move its funds from the bank when the news of a potential collapse was rife. The situation forced Diaceutics to suspend trading on AIM temporarily.

Following these events, around 210 firms and startups wrote an open letter to the U.K. Chancellor Jeremy Hunt at the Treasury Department, seeking financial assistance.

The letter was signed by about 140 CEOs and founders of well-known brands, including Zoom Video Communications, GitHub, Stripe, DocuSign, Atlassian, Coursera, Slack Technologies, Eventbrite, Fitbit, GoPro, Twilio, Box, Asana, Cloudera, Dropbox and SurveyMonkey — all of whom requested urgent action from the U.K. government.

What this means for tech leaders in the U.K.

The U.K. startup space witnessed significant growth in tech investments last year but would have been dealt a massive blow without the government’s intervention. According to eWeek, in 2022, the U.K. ranked second for global startup funding with £12.7 billion ($15.47 billion USD) tech investment. The record took the U.K. above China and India, signaling a new wave of digital acceleration that has seen the U.K. government promising more financial and regulatory support to the tech industry in the country.

With the government’s timely intervention, which facilitated HSBC’s takeover of SVB, hope has been restored among tech investors in the country. Some tech leaders have also reacted to the development. Dom Hallas, executive director of the Coalition for a Digital Economy, tweeted that the government’s actions “have saved hundreds of the U.K.’s most innovative companies.”

“Fantastic news that HSBC will buy SVB UK. A good outcome which will help the UK technology sector continue its growth. A great relief for many.” Daniel Korski, CEO and co-founder at PUBLIC, shared in a tweet.

Meanwhile, in the U.S, the financial industry and tech sector are still struggling to recover fully from the SVB collapse. A joint effort from the U.S. Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation is addressing the parent company’s problems. Emergency measures were recently announced to support banks and reassure depositors that their money is safe.

Read next: The top 5 fintech trends for 2023 (TechRepublic)

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