UK firms at ‘serious risk’ from Silicon Valley Bank collapse, warns Jeremy Hunt

UK tech firms, including startups, are at risk following the collapse into insolvency of the British arm of Silicon Valley Bank (SVB). The bank has a limited UK presence but is a key lender to the technology and life sciences sectors. The news has prompted an emergency response from the UK government, including talks between chancellor Jeremy Hunt, governor of the Bank of England Andrew Bailey and Chancellor Rishi Sunak. The government is working on a plan to support tech and life sciences companies with their “cashflow” needs. CEOs of 140 leading UK startups wrote to Hunt on Saturday to call for emergency intervention.
 
SVB is the biggest US bank to collapse since the 2008 financial crisis. SVB UK has ceased accepting deposits and making payments, although deposits are covered by the £85,000 deposit insurance scheme. The UK government said it was “working at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK”. A number of options are being considered, including underwriting deposits in the bank. The SVB’s collapse could have a negative domino effect on other firms in the tech sector that use it to distribute venture capital around the world. But UK Prime Minister July Boris Johnson declined to comment on whether an emergency scheme to cover deposits at the bank was being considered. 
 
The collapse of SVB UK has led to fears of a domino effect on other fintech firms if lenders reduce credit for firms in the sector. The possible ripple effect has led to calls for the Bank of England to provide “significant and additional liquidity to whoever buys” SVB. The UK tech sector has been hit by the Covid-19 pandemic, Brexit and regulatory challenges. About three-quarters of VC funding now comes from non-EU markets.
 
Two of the factors that led to the collapse of SVB are believed to be the cost of being headquartered in London as well as a reduction in leverage ratios. Shareholers had become increasingly impatient with the bank’s UK unit, which had failed to make a consistent profit. SVB’s global HQ is in Silicon Valley, California. It has $180bn in assets, a market capitalisation of $100bn and is expected to expand by 10% this year. The UK arm has only $10bn in assets, but is seen as important given the UK’s increasing focus on innovation.



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