Fintechs react to HSBC acquisition of Silicon Valley Bank UK

In news that sent shockwaves across the fintech and financial services industry, The Bank of England today confirmed that HSBC will be acquiring Silicon Valley Bank‘s UK arm after the US bank and UK arm collapsed on Friday 10th March 2023. Chancellor of the Exchequer Jeremy Hunt confirmed the news that SVB’s customers will be able to access their deposits and banking services as normal from today. But what do fintechs really think of the weekend’s events? We asked experts from across the industry for their opinions.

This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC

Deposits will be protected, with no taxpayer support

I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise

— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023

Krista Griggs, Head of Financial Services & Insurance at Fujitsu: “The UK technology industry is thriving and it requires a commitment to long-term success if the country is going to achieve its ambition of becoming a scientific and technology superpower.”

“HSBC’s fast response is a welcome move that will ensure continuity for businesses at risk from the collapse of Silicon Valley Bank. It shows commitment to innovation and I expect to see more involvement from traditional banks as they look to provide stability during disruption – as well as further union between them and FinTech companies as this sector continues to rapidly evolve.

Statement From The Bank Of London Regarding Silicon Valley Bank UK Ltd: “It is great news that a speedy solution has been found for Silicon Valley Bank UK Limited, and the thousands of businesses it supports across fintech, life sciences and new technologies. It means a vital community helping to foster innovation in our country continues to receive banking services without interruption.

“For many, this will be seen as a missed opportunity to support competition and innovation. 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. Britain needs better. For our part, we at The Bank of London stand ready to serve the entrepreneurial community of the UK.”

Aman Behzad, founder and Managing Partner of fintech advisory Royal Park Partners: “A great outcome today with HSBC stepping in to buy SVB UK. With 100% of deposits guaranteed, all founders with money at SVB can now go and get some rest after having their hearts in their mouths this weekend.

“Tech underpins the UK, and indeed global, economic ecosystem and it is a relief that an existential crisis has been averted. It’s inspiring to see the government working closely with the industry to find a timely solution, and safeguard the innovative businesses that are vital to our economy’s growth.

“No doubt an important test, this signals a commitment to safeguarding those building our future, and I hope to see greater support for innovators going forward.”

Tim Chong, co-founder and CEO of Yonder said: “The entire startup community pulled together this weekend to demonstrate the importance of a positive outcome for depositors. Our investors were incredibly supportive and we were really impressed by the speed and action of the UK government in response.

“It would be naive to view the events of the last few days as a one-off – we have to be prepared for long-term turbulence in the current climate. But the community response we’ve seen this weekend has really demonstrated to us how valued the startup sector is in the UK. We’re feeling cautious but optimistic.”

Martin McCann, CEO of Trade Ledger said: “The cost of rising interest rates was exacerbated by SVBs small loan book and the fact that all their investments into long-term bonds did not see an uptick in yields. This increase is significant as so much of their deposit base is ‘professional’ and not retail and is, therefore, price sensitive to rates (and demand higher deposit rates to reflect the interest rate increases).

“SVB, like many commercial banks, has underweight short-term secured lending e.g. Invoice Finance and Receivables Finance. Why is this? It’s too hard – historically. But the asset class is an essential part of the balance sheet.

“The technology and data, to remove many of the blockers lenders face when offering short-term secured lending, already exists. But lenders have been slow to act.

“Commercial lenders have the ability to get retail-like ‘balance’ which will go a long way to effectively manage their balance sheets. But they need to embrace modern tech and new digital datasets to originate, risk asses, manage in real-time across the life cycle, and actively optimise their portfolio risk”

Comment from Hristo Borisov, CEO and Founder of UK-headquartered fintech unicorn Payhawk: “As a result of the SVB crash, startups will ‘evolve’ how they interact with money. The majority of tech companies are now likely to add other bank accounts, credit cards and so on to their financial stack; and also diversify their supplier, vendors and critical business infrastructure, in order to reduce over-reliance on any one particular provider.

My expectation is that the aggressive increases of interest rates added a lot of stress to the system, and that central banks might have to look for alternative approaches to how they manage inflation and overall market stability.

The incident highlights some longer-term concerns, and it should be seen as an important lesson not only to startups, but also to their investors that actively contributed to the spreading of fear, and ultimately the bank run that occurred.

There is absolutely no bank that can sustain a bank run of 40% of its cash in a matter of hours, and leaving in a world where everybody is a whatsapp message away, and having instant access to its online banking might also require some backstops from the regulators to ensure events like this don’t occur.”

Stephen Chandler, co-Founder and Managing Partner of UK venture capital firm Notion Capital: “Both the HSBC acquisition in UK and the US Treasury statement re supporting depositors there mean the whole innovation economy can breathe a sigh of relief in what would otherwise have been a bloodbath. We had £167m of portfolio company money frozen and 13 companies rated red/high risk of failure this month without help. These were all high-quality software companies with no other solvency issues.

I would have preferred SVB to remain a single standalone global organisation recapitalised as I think they do good work for the ecosystem but it’s still a great outcome vs the alternatives. HSBC have got an absolute steal I believe. I hope they build on the capabilities in SVB and continue to provide a service tailored to the tech community. We used to bank with HSBC but moved to SVB in 2012 because they had a far greater understanding of our needs back then.

This whole episode has highlighted real issues though. First, banks assess risk of a ‘run’ based on antiquated formulae. In a hyper connected world, it takes just minutes. Second, companies need to be allowed, indeed encouraged, to diversify their banking relationships. SVB inhibited this. And third, even then the asset/liability timing mismatch remains an issue to address (long term loans funded by short term deposits).