US watchdogs took control of a key tech lender last night in the biggest US bank failure since the 2008 financial crisis.
The move came as Silicon Valley Bank (SVB) scrambled to raise £1.5bn in funding to make up for a loss from 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 drop in its share price raised concerns about its stability.
SVB’s failure is the biggest since the collapse of Washington Mutual, which imploded during the 2008 financial crisis and was at the time the largest savings and loan association in the United States.
The debacle has sent shockwaves through international markets, with nearly £10bn wiped out from the UK’s biggest lenders. In London, NatWest shares fell 2.5%, or 7.3p, to 286p, Barclays fell 3.7%, or 6p, to 157.42p, HSBC fell 4.6%, or 28.5p, to 592.6p, Lloyds fell 3.3%. , or 1.69p, to 49.78p and Standard Chartered fell 4.5%, 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%, or 131.63 points, at 7748.35.
The fallout also caught the attention of the Bank of England, which decided to stem the panic.
A Bank of England spokesperson said: “Silicon Valley Bank UK is supervised and authorized by the Prudential Regulation Authority.
“The UK bank has no personal depositors. We are aware of the issues affecting the company and work closely with it and foreign regulators.
Founded in 1982, SVB was Silicon Valley’s largest bank and specializes in lending to tech start-ups, providing funding to tens of thousands of fledgling companies. But the company’s shares plunged more than 80% after it stunned the market on Wednesday night by warning it had suffered a £1.5billion loss following a crash sale of its portfolio of assets, consisting mainly of US government debt.
Trading in the shares was halted on Friday as the crisis escalated. The company was reportedly in talks to sell itself, but any chance of a deal quickly faded as its customers rushed to withdraw their money.
The panic reached such a pitch that building managers at SVB’s Manhattan office reportedly called the police after a group of disgruntled tech founders showed up at the door trying to withdraw their funds.
Meanwhile, the company’s UK subsidiary, Silicon Valley Bank UK, was quick to reassure customers that it was closed with its own balance sheet. But the US parent company’s revelation has sent panic among investors that other banks could face similar problems after many invested in big debt during the pandemic.
The value of this debt fell last year during a global rout in bond markets, leading to speculation that many banks could suffer significant losses if forced to sell their portfolios like SVB.
The rout in SVB shares has spread to major US banks, with shares of JP Morgan down 7% this week, Citigroup down 7.1%, Morgan Stanley down 7.2%, Goldman Sachs in down 7% and Bank of America down 11%. .
European banks were also hit, with shares in Deutsche Bank down 7.4%, and Societe Generale and BNP Paribas in France falling 4.5% and 3.8% respectively.
Valued at £37billion just a year ago
Silicon Valley Bank (SVB) is a crucial lender to tech and healthcare start-ups in the United States.
Founded in 1982 and based in the California town of Santa Clara, the financier is one of Silicon Valley’s oldest and largest banks and handles most of the region’s local deposits. Its collapse marks a rapid fall from grace for a lender who was valued at more than £37billion a year ago.
At the end of last year it held around £175bn in assets.
It primarily focuses on cash lending to technology companies and offers services to private equity and venture capital groups to invest in the sector.
Its UK branch has backed several notable technology groups, including review website Trustpilot and software company Learning Technologies.
Boss Greg Becker found himself scrambling to bolster confidence in the bank as the rapidly worsening crisis caused many of its backers to withdraw their money, leaving it facing a cash crunch.
In a hastily organized call on Thursday, Becker, 52, advised embattled SVB backers and founders to ‘stay calm’, saying ‘the last thing we need you to do is panic’ .
Collapse is the latest blow to Britain’s tech queen
“Queen of Technology”: Vin Murria
The so-called queen of technology suffered another blow with the collapse of Silicon Valley Bank.
Vin Murria is a board member of the UK branch of the collapsed bank, 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 the advertising agency’s vice president amid the takeover battle. Murria (pictured) is best known for her time at software company Advanced Computer Software Group, which was sold in 2014 for £750million, making her and the company’s investors a fortune But SVB’s failure is another blow to its reputation. Fears are also growing over the consequences of the bank’s demise for the British companies it supported.
Over the years, he has invested in a number of companies, including retirement platform PensionBee and money transfer group Wise.
But a PensionBee spokesman said yesterday that its relationship with SVB was minimal. A spokesperson for Wise, the currency exchange app company, said: “We have minimal exposure to SVB through a credit facility they are part of with six other major banks, and a small cash balance in an account. operational business.”
SVB UK reassured investors that it was a stand-alone entity with a separate balance sheet and governance structure.
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