US watchdogs dramatically took control of a key tech lender last night in the largest failure of an American bank since the 2008 financial crisis.
The move came as Silicon Valley Bank (SVB) scrambled to raise £1.5billion in funding to plug a loss from the sale of assets affected by higher interest rates.
The lender’s troubles prompted a rush of customer withdrawals and forced Californian regulators to step in after a record plunge in its stock price sparked concerns about its stability.
SVB’s failure is the biggest since the collapse of Washington Mutual, which imploded during the 2008 financial crisis and at the time was the US’s largest savings and loan association.
The debacle sent shockwaves across international markets, with nearly £10billion wiped off the UK’s largest lenders. In London, shares in NatWest slumped 2.5 per cent, or 7.3p, to 286p, Barclays dropped 3.7 per cent, or 6p, to 157.42p, HSBC slipped 4.6 per cent, or 28.5p, to 592.6p, Lloyds fell 3.3 per cent, or 1.69p, to 49.78p and Standard Chartered sank 4.5 per cent, or 35.2p, to 739.8p.
Troubles: Silicon Valley Bank founder Greg Becker
The sell-off in the sector weighed heavily on the FTSE 100, which ended the day down 1.7 per cent, or 131.63 points, at 7748.35.
The fallout also caught the attention of the Bank of England, which moved to stem the panic.
A Bank of England spokesman said: ‘Silicon Valley Bank UK is supervised and authorised by the Prudential Regulation Authority.
‘The UK bank has no personal retail depositors. We are aware of the issues impacting the firm and are closely engaging with it and overseas regulators.’
Founded in 1982, SVB was the biggest bank in Silicon Valley and specialises in lending to start-up technology companies, providing funds for tens of thousands of fledging businesses. But the company’s shares plunged by more than 80 per cent after it stunned the market on Wednesday night by warning it had suffered a £1.5billion loss following a fire sale in its asset portfolio, which was comprised mostly of US government debt.
Trading in the shares was halted on Friday as the crisis escalated. The company was reported to have been in discussions to sell itself, but any chance of a deal quickly faded as its customers rushed to pull out their cash.
The panic reached such an extent that building managers at SVB’s office in Manhattan reportedly called the police after a group of disgruntled tech founders turned up on the doorstep in an attempt to withdraw their funds.
Meanwhile, the company’s British subsidiary, Silicon Valley Bank UK, rushed to reassure customers that it was ring-fenced with its own balance sheet. But the revelation from the US parent sparked panic among investors that other banks could be facing similar problems after many invested in large amounts of debt during the pandemic.
The value of this debt tumbled last year during a global rout in bond markets, leading to speculation many banks could be facing large losses if they are forced to sell their portfolios like SVB.
The rout in SVB shares spread to major US banks, with shares in JP Morgan down 7 per cent this week, Citigroup fell 7.1 per cent, Morgan Stanley slipped 7.2 per cent, Goldman Sachs sank 7 per cent and Bank of America dropped 11 per cent.
European banks were also hit, with shares in Deutsche Bank down 7.4 per cent, and France’s Societe Generale and BNP Paribas fell 4.5 per cent and 3.8 per cent respectively.
Valued at £37bn just a year ago
Silicon Valley Bank (SVB) is a crucial lender for start-up tech and healthcare companies in the US.
Founded in 1982 and based in the Californian city of Santa Clara, the financier is one of the oldest and largest banks in Silicon Valley and manages most of the area’s local deposits. Its collapse marks a swift fall from grace for a lender that was valued at more than £37billion a year ago.
At the end of last year, it held around £175billion in assets.
It mainly focuses on lending cash to technology firms and offering services to private equity and venture capital groups to invest in the sector.
Its UK arm has supported several notable tech groups including review website Trustpilot and software firm Learning Technologies.
Boss Greg Becker found himself scrambling to shore up confidence in the bank as the rapidly escalating crisis caused many of its backers to pull out their money, leaving it facing a cash crunch.
In a hastily organised call on Thursday, Becker, 52, advised SVB’s beleaguered backers and founders to ‘stay calm’, saying ‘the last thing we need you to do is panic.’
Collapse is latest blow for British tech queen
‘Queen of tech’: Vin Murria
The so-called queen of tech has suffered another blow with the collapse of Silicon Valley Bank.
Vin Murria is a board member of the collapsed bank’s UK arm, which over the years has backed well-known start-ups such as Secret Escapes and Trustpilot.
Last year she failed in her bid to buy M&C Saatchi and lost her job as deputy chairman of the advertising agency amid the takeover battle. Murria (pictured) is best known for her time at software firm Advanced Computer Software Group, which was sold in 2014 for £750m, making her and the company’s investors a fortune. But SVB’s failure is yet another hit to her reputation. Fears are now also mounting over what the bank’s demise means for British companies which it backed.
Over the years it has invested in a number of firms including pensions platform PensionBee and money transfer group Wise.
But a spokesman for PensionBee yesterday said its relationship with SVB was minimal. A spokesman for Wise, the foreign exchange app firm, said: ‘We have minimal exposure to SVB via a credit facility they are part of together with six other major banks, and a small cash balance in an operational corporate account.’
SVB UK reassured investors, stating it was a stand-alone entity with a separate balance sheet and governance structure.
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