Silicon Valley Bank sparks contagion fear

U.S. watchdogs dramatically took control of a major tech lender last night in the biggest failure of a U.S. bank since the 2008 financial crisis.

The move came as Silicon Valley Bank (SVB) scrambled to raise £1.5bn in funding to close a loss on the sale of assets hit by higher interest rates.

The lender’s troubles sparked a wave of customer withdrawals and forced California regulators to intervene after a record-breaking stock price plunge raised concerns about its stability.

The SVB’s bankruptcy is the largest since the collapse of Washington Mutual, which imploded during the 2008 financial crisis and was the largest savings and credit union in the US at the time.

The debacle sent shockwaves through international markets, wiping out nearly £10bn from the UK’s biggest lenders. In London, shares of NatWest fell 2.5 percent, or 7.3 pence, to 286 pence, Barclays fell 3.7 percent, or 6 pence, to 157.42 pence, HSBC fell 4.6 percent, or 28.5 pence, to 592.6 pence, Lloyds fell 3.3 per cent, or 1.69p, to 49.78p and Standard Chartered fell 4.5 per cent, or 35.2p, to 739.8p.

The sector sell-off weighed heavily on the FTSE 100, which ended the day up 1.7 percent, or 131.63 points, at 7748.35.

The fallout also caught the attention of the Bank of England, which took action to stem the panic.

A spokesman for the Bank of England said: ‘Silicon Valley Bank UK is supervised and authorized by the Prudential Regulation Authority.

‘The British bank has no private depositors. We are aware of the issues affecting the company and are working closely with the company and foreign regulators.”

Founded in 1982, SVB was the largest bank in Silicon Valley and specializes in providing loans to technology start-ups, financing tens of thousands of early-stage companies. But shares of the company plunged more than 80 per cent after it stunned the market on Wednesday evening by warning it had lost £1.5bn following a fire sale of its asset portfolio, which was mostly made up of US government debt.

Trading in the shares was halted on Friday due to the escalating crisis. The company would have been in talks to sell itself, but any chance of a deal quickly faded as customers rushed to collect their cash.

The panic reached such a level that building managers at SVB’s Manhattan office reportedly called police after a group of disgruntled tech founders showed up at their doorstep trying to withdraw their money.

Meanwhile, the company’s UK subsidiary, Silicon Valley Bank UK, rushed to reassure customers that it was shielded with its own balance sheet. But the US parent company’s revelation sparked investor panic that other banks could face similar problems after many invested in large amounts of debt during the pandemic.

The value of this debt plummeted last year amid a global bond market slump, leading to speculation that many banks could face huge losses if they were forced to sell their portfolios, such as the SVB.

The fall in SVB shares spread to major US banks, with shares in JP Morgan down 7 percent this week, Citigroup down 7.1 percent, Morgan Stanley down 7.2 percent, Goldman Sachs down 7 percent percent and Bank of America fell 11 percent.

European banks were also hit, with shares in Deutsche Bank losing 7.4 percent, and France’s Société Générale and BNP Paribas falling 4.5 percent and 3.8 percent respectively.

Estimated at £37 billion just a year ago

Silicon Valley Bank (SVB) is a critical lender to technology and healthcare start-ups in the US.

Founded in 1982 and based in the California city of Santa Clara, the financier is one of the oldest and largest banks in Silicon Valley and manages most local deposits in the area. The collapse marks a rapid fall from grace for a lender valued at more than £37bn a year ago.

At the end of last year, it had about £175 billion in assets.

It mainly focuses on lending money to technology companies and providing services to private equity and venture capital groups to invest in the sector.

The UK arm has supported several notable technology groups, including review website Trustpilot and software company Learning Technologies.

Boss Greg Becker found himself making an effort to bolster confidence in the bank as the rapidly escalating crisis caused many lenders to withdraw their funds, leaving the bank facing a cash crunch.

In a hastily organized call on Thursday, Becker, 52, advised beleaguered SVB backers and founders to ‘keep calm’, saying ‘panic is the last thing we want you to do’.

Collapse is the final blow to the British tech queen

‘Queen of Tech’: Vin Murria

The so-called queen of technology has taken another blow with the collapse of Silicon Valley Bank.

Vin Murria is a board member of the collapsed bank’s UK arm, which has backed well-known start-ups such as Secret Escapes and Trustpilot over the years.

Last year, she failed to buy M&C Saatchi and lost her job as deputy chairman of the advertising agency during the takeover battle. Murria (pictured) is best known for her time at software company Advanced Computer Software Group, which was sold in 2014 for £750 million, making her and the company’s investors a fortune. But the failure of the SVB is yet another blow to its reputation. Fears are now also mounting over what the bank’s demise means for British businesses it supported.

Over the years, it has invested in a number of companies, including pension platform PensionBee and money transfer group Wise.

But a spokesman for PensionBee said yesterday that the relationship with the SVB was minimal. A spokesperson for Wise, the currency app firm, said: “We have minimal exposure to SVB through a credit facility they’re part of along with six other major banks, and a small cash balance in an operating company account.”

SVB UK reassured investors by saying it was a stand-alone entity with a separate balance sheet and governance structure.