London Daily

Focus on the big picture.
Tuesday, Mar 21, 2023

HSBC's SVB UK buyout: The codenames and secret talks which averted a banking disaster

HSBC's SVB UK buyout: The codenames and secret talks which averted a banking disaster

Questions remain after the Silicon Valley Bank saga showed the financial system remains vulnerable to unexpected shocks. But here's the story of how a hidden effort went on throughout the weekend to avoid disaster for the UK tech sector.

The low point came on Sunday evening.

For two days and two nights the Bank of England had, alongside the Treasury and its fellow financial regulators, been locked in talks with a stream of potential buyers for the UK branch of Silicon Valley Bank.

With the clock ticking down to the opening of financial markets on Monday morning, things were suddenly looking bleak.

For a time on Sunday morning, it had looked as if a buyer could be found from one of the Gulf states. But those talks had foundered.

Officials had been calling round British banks but they were nervous about stepping in to buy SVB UK.

Would they be liable if anything emerged about the way the bank had done business in previous years? What about anti-money laundering rules - would they be liable there too?

As the questions hung in the air, the Bank began to map through a worst-case scenario.

Far from a normal bank

If it failed to find a buyer then it would have to announce that the bank was insolvent before markets opened on Monday.
Advertisement

Deposits up to £85,000 would be protected by Britain's deposit insurance scheme, but while this would be sufficient for many "normal" customers in "normal" banks, Silicon Valley Bank was far from being a normal bank.

SVB, which as the name suggests began life on the west coast of the US, was a bank which catered not for regular individuals or for that matter regular businesses, but for the denizens of the tech sector.

Its American branch was the darling of Silicon Valley - the favourite place for its start-ups to bank.

Indeed, some venture capital firms insisted that the companies they were financing would put money there.

Something similar went for the UK arm, which was set up to provide financial services for Britain's burgeoning tech scene.

Although it was considerably smaller than its American parent, SVB UK had built up accounts with more than 4,000 companies - including many prominent tech firms.

And since the UK's tech sector is particularly focused on biotech and fintech (finance and medical technology firms respectively) that meant its customer base included some of the country's most promising start-ups.

But in recent months, the US parent ran into trouble: the rise in global interest rates had caused a sharp fall in the value of bonds in SVB's balance sheet.

As it sought to rebuild its financial position last week, it announced plans to raise more money from investors.

The panic spiral

The news triggered a panic about its survival.

Founders and executives began to pull money out of the US bank, and so began a bank run, with customers pulling their deposits out rapidly - both in America and, as news of the bank's travails spread - in the UK too.

Bank runs are always fast, and SVB UK's was no exception.

While the UK wing of SVB was far smaller than its American parent (which had $175bn as of December) the speed of its collapse was nonetheless breathtaking.

On Thursday afternoon SVB UK had around £11bn in customer deposits. By early afternoon on Friday customers had withdrawn more than £1bn, leaving just over £9bn.

As Friday afternoon wore on, the stream of withdrawals turned to a flood with a further £3bn being withdrawn by companies desperately worried about their funds.


That was when the Bank of England intervened and took control: with its deposit base having nearly halved in the space of just over 24 hours (to £6.7bn by close of play Friday), it was clear that SVB UK couldn't survive on its own anymore.

By the time the Bank of England stepped in, executives at SVB UK seemed, as far as the regulators were concerned, to be relieved that they could at least stem the flow of deposits.

There was no question of getting an infusion of cash from the American parent bank (which had already effectively collapsed itself) so the only question was what kind of end SVB UK would face.

Could its demise be processed in an orderly manner or not?

The potential outcomes


There were, broadly speaking, three potential outcomes.

The first (and by far the most preferable) was to sell SVB UK in its entirety to another bank - ideally a British one, regulated in London.

The second was for a "bridge bank": the government would take possession of SVB UK and find a way either of running it down over time or running it until it could be sold off.

The third was formal insolvency. The bank would be wound down. Depositors would have the first £85,000 of their deposits insured but anything above that would depend on how much money could be recouped from the insolvency process.

The problem with the latter two options was that both would involve the deployment of public money.

But that Friday evening, with no potential buyers having surfaced, the assumption at the Bank of England was that SVB UK would face insolvency.

Officials made a terse public announcement along those lines, and then they got to work trying to find a buyer.

Hundreds worked through the night


So began a long weekend at the Bank, and the biggest test yet of the "resolution" system put into place following the 2008 crisis, which promised to find a way to neatly wind up (or sell on) a bank in the event of collapse.

Hundreds of officials were drafted in - some in the Bank itself, some working from home, some from the other parts of Britain's financial regulatory system and some from the Treasury - to find a solution.

Governor Andrew Bailey - who was in Basel, Switzerland, for a regular central banker summit - was involved in all the calls.

Officials worked through the night, catching a couple of hours' sleep when they could.

The effort was given various codenames: at Threadneedle Street they called it "Operation Cork", in the Treasury it was "Operation Yeti" and the various potential suitors to SVB UK were also given their own codenames to prevent news of them leaking.

The talks progressed, day and night, from Friday through to Sunday.

While on Friday night insolvency looked like the most likely outcome, as Saturday progressed a few suitors emerged.

For a period it looked as if a buyer would be found in the United Arab Emirates. Then those talks unravelled.

And by Sunday night, the low point, insolvency once again looked like the most likely endgame.

A collapse that threatened to be especially messy


No bank collapse is pretty, but SVB UK's threatened to be especially messy.

On the one hand, it didn't have individual customers - so there was no risk of hard-pressed households losing their savings.

This was a business bank, so the main victims would be companies. However, many of those companies had significant deposits at SVB UK.

By the close of play on Friday there were just over 4,000 customers of SVB UK.

Of these businesses, around half had less than £85,000 in their accounts, so would be fully protected by Britain's deposit insurance scheme, a post-crisis innovation which protects bank customers up to a certain amount.

However, that left just under two thousand businesses with large amounts of money in their accounts - the average deposit of these customers was £3.5m.

Some had far greater amounts, with certain companies having hundreds of millions of pounds.

These companies faced an existential threat if SVB UK had collapsed without a buyer.

While in such insolvencies much of the lost deposits are eventually recouped, it is a slow drawn-out process which invariably causes deep uncertainty and leaves scars among those depositors.

Of even greater worry inside the bank were a set of "fintech" companies which acted as "deposit aggregators", taking money from customers and then leaving some of that cash in a variety of other bank accounts.

Sky News understands that a number of these companies had significant amounts of customer money at SVB UK.

While those customer deposits would have been protected by deposit insurance in the event of a collapse, it would nonetheless have caused ripples of concern in the financial world.

As the officials worked through the night to find a buyer, they made plans for SVB UK's formal insolvency. They tried to work out whether they could farm out some of its accounts to other banks, but the talks were difficult.

Then, in the early hours of Monday morning, things started to change.

HSBC's bid came so late it didn't get a codename


HSBC, which had surfaced in the negotiations so late that it hadn't even been given a codename, emerged as a serious buyer.

It wanted certain assurances - that it wouldn't face onerous anti-money laundering checks for its new customers and that it wouldn't have to take responsibility for any previous misconduct at SVB UK - but it was willing to buy SVB UK for £1.

By about 1am on Monday, the Bank's staff, bleary-eyed after a marathon weekend, realised that the worst seemed to have been averted.

HSBC was serious. The lawyers set to work on the contracts.

SVB UK would carry on operating, under the ownership of HSBC, who would gradually incorporate it into their business.

The thousands of customers - tech founders who had been facing potentially catastrophic consequences - would have all their deposits protected.

No public money would be deployed. It was, in the circumstances, about the best possible outcome.

A UK response that looks, comparatively, like a triumph


On the one hand, said some of those involved, the episode illustrated the strength of Britain's bank resolution system.

A disaster was averted. No public money was deployed.

In the US, the Federal Reserve was forced to intervene and signal that it was standing behind customer deposits. The American parent faced insolvency; no buyer was found. By contrast, the UK's response looked like a triumph.

However, the episode underlines a few things.

First, the financial system remains vulnerable to these unexpected shocks.

Second, there are question marks about why tech firms put quite so much money - way more than was insured by deposit protection - into a single bank, and especially about the fact that some were reportedly coerced to do by their financial backers.

Third, given this was yet another earthquake triggered in large part by rising interest rates (the first being Britain's liability driven investment pensions crisis last autumn), what other bombs are buried in the system?

The final concern is that even as it helped confront this bank collapse, the Treasury is making plans to overhaul Britain's financial regulation.

Its proposals will, say some economists, pare back some of the controls and rules imposed after the financial crisis.

Some wonder now whether this episode underlines why those controls matter so much.

Newsletter

Related Articles

London Daily
Close
0:00
0:00
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
You're Beautiful - James Blunt (Boyce Avenue acoustic cover)
Home Secretary Suella Braverman tours potential migrant housing in Rwanda as asylum deal remains mired in legal challenges
You Are So Beautiful
Goldman Sachs cuts outlook for European bank debt over Credit Suisse crisis
Postmodern Jukebox European Tour Version
Paris Rioting vs Macron anti democratic law
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
'Sexual Fantasy' Assignment At US School Outrages Parents
Sattahip Motor Show 20
Orbán Viktor: the restructuring of the power relations in the whole of Europe is taking place
SONATE AU CLAIR DE LUNE - Moonlight sonata
Credit Suisse to borrow $54 billion from Swiss central bank
A kiss to build a dream on
The BBC problem about China
Wiz Khalifa - See You Again ft. Charlie Puth, Furious
Strikes-Hit UK Pledges 94 Billion Euros In Cost-Of-Living Budget
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
Russian Hackers Preparing New Cyber Assault Against Ukraine
Mean Blues
"Will Fly Wherever International Law Allows": US Warns Russia After Drone Incident
La Chansonnette
UK face biggest fall in spending power for 70 years
Pattaya Addicts
Jeremy Hunt insists his Budget will get young parents and over-50s back into work
Franz Liszt - Liebestraum - Love Dream
If this was in Tehran, Moscow or Hong Kong
Dream a little dream of me
Announcing GPT-4
Tu Vuo' Fa' L'Americano - Hetty & the Jazzato Band
TRUMP: "Standing before you today, I am the only candidate who can make this promise: I will prevent World War III."
Unchained Melody sung like you've NEVER heard!
Drew Barrymore
Dave Brubeck - Take Five
China is calling out the US, UK, and Australia on their submarine pact, claiming they are going further down a dangerous road
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
A brief banking situation report
Rondo Alla Turca
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
Kiss of fire
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
Ed Sheeran - Perfect (Amadeus violin cover instrumental)
'No relation to the American SVB': India's SVC Bank acts to calm depositors amid brand name confusion.
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
Good news: The U.S. government is now guaranteeing all deposits, held by, Silicon Valley Bank, and the funds are available as of today
Israel Cachao López - Guajira Clásica
Silicon Valley Bank exec was Lehman Brothers CFO
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
In a potential last-ditch effort, HSBC is considering a rescue deal to save Silicon Valley Bank UK from insolvency
Strauss - Radetzky March - Karajan
Saudi Arabia has announced a major breakthrough in diplomacy with Iran after two years of intense talks
La vie en rose
BBC Director General, Tim Davie, has apologized, but not resigned, yet, following the disruption of sports programmes over the weekend
Despacito (Piano Cover) - Peter Bence
A Mississippian man, who was once considered a “ticking time bomb,” has lost a whopping 165 kilograms! What motivated this incredible transformation?
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
Elon Musk Is Planning To Build A Town In Texas For His Employees
Orlando Cachaito Lopez Redencion
The Silicon Valley Bank’s collapse effect is spreading around the world, affecting startup companies across the globe
Edith Piaf - NON, JE NE REGRETTE RIEN
City officials in Berlin announced on Thursday that all swimmers at public pools will soon be allowed to swim topless
RADETZKY MARCH-2008-Wien, New Year Concert
Fitness scam
Only you (And you alone)
Market Chaos as USDC Loses Peg to USD after $3.3 Billion Reserves Held by Silicon Valley Bank Closed.
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
A primitive judge in Australia sparked outrage when he told a breastfeeding woman to leave his courtroom for being “a distraction"
Strangers In The Night
Barcelona is feeling the heat as they face corruption charges over payments to former vice-president of Spain's referees' committee, Jose Maria Enriquez Negreira
Charles Aznavour - La Boheme
Banking regulators close SVB, the largest bank failure since the financial crisis
Summer time
Watch: “They are wounded but unbowed, unbreakable.”
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
Silicon Valley Bank: Struggles Threaten Tech Startup Ecosystem"
Aux Champs Elysees
The unelected UK Prime Minister Rishi Sunak, an immigrant himself, defends new controversial crackdown on illegal migration
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
Old clip of Bill Gates saying Ukraine is a big, fat, corrupt sinkhole is going viral
La Mer (Beyond the Sea) – Avalon Jazz Band
Man’s penis amputated by mistake after he’s wrongly diagnosed with a tumour
She
Motorist fined £650 after council ‘paints disabled bay around his car
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Brexit Deal Falls Short: UK Regains Few Pre-Brexit Benefits
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
In a major snub to Downing Street's Silicon Valley dreams, UK chip giant Arm has dealt a serious blow to the government's economic strategy by opting for a US listing
Radiohead - Creep
Brexit is done (sort of), again
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
JP Morgan Becomes First Bank to Predict UK Will Avoid Recession
Perhaps, Perhaps, Perhaps - Multi-Couples
JP Morgan Becomes First Bank to Predict UK Will Avoid Recession
Pentatonix Havana
JPMorgan has become the first City of London forecaster to predict that Britain will stay out of recession in 2023
Paula Cole - Autumn Leaves
How do stolen goods end up on Amazon, eBay and Facebook Marketplace?
Oscar Benton Bensonhurst Blues
It's the question on everyone's lips: could a four-day workweek be the future of employment?
OH NANANA vs ABUSADAMENTE
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
NIGHTWISH - The Phantom Of The Opera
Motorshow 2016 Tanjay Negros Oriental
Monica Bellucci - Ti Amo
Michael Jackson - Billie Jean Milena The Voice France 2018
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I'LL BE MISSING YOU
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Sway
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
GIPSY KINGS VOLARE Penelope Cruz
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Bella Ciao - INSTRUMENTAL
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BELLA CIAO 2020 - KARAOKE ITALIANO
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
2CELLOS - Despacito [OFFICIAL VIDEO]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
00 - SADNESS PART 1
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river
×