US watchdogs seized 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 funds to cover a loss from the sale of assets affected by higher interest rates.
The lender’s woes sparked a spate of customer withdrawals and forced California regulators to step in 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 US.
The debacle shocked international markets, with nearly £10bn wiped out from the UK’s biggest lenders.
Problems: Silicon Valley Bank founder Greg Becker
In London, shares in NatWest fell 2.5 per cent, or 7.3 pence, to 286 pence, Barclays fell 3.7 per cent, or 6 pence, to 157.42 pence, HSBC fell 4.6 per cent, or 28.5 pence. pence, to 592.6 pence, Lloyds fell 3.3 per cent, or 1.69 pence, to 49.78p and Standard Chartered sank 4.5%, or 35.2p, to 739.8p.
The sell-off in the sector weighed heavily on the FTSE 100, which ended the day down 1.7 percent, or 131.63 points, at 7,748.35.
The fallout also caught the attention of the Bank of England, which moved to stop the panic.
A Bank of England spokesperson said: ‘Silicon Valley Bank UK is supervised and authorized by the Prudential Regulation Authority.
‘The UK bank does not have personal retail depositors. We are aware of the issues affecting the company and we work closely with it and with foreign regulators.”
Founded in 1982, SVB was the largest bank in Silicon Valley and specializes in lending to start-up technology companies, providing funding for tens of thousands of start-ups.
But the company’s shares plunged more than 80 percent after it shocked the market on Wednesday night by warning it had suffered a £1.5bn loss following a forced sale of its asset portfolio, which was composed primarily of US government debt.
Trading in the shares was halted on Friday as the crisis intensified. The company was reported to have been in talks to sell, but any chance of a deal quickly faded as its customers scrambled to get their cash.
The panic reached such a point that building managers at SVB’s Manhattan office called the police after a group of disgruntled tech founders showed up at the door in an attempt to withdraw their funds.
Meanwhile, the company’s British subsidiary, Silicon Valley Bank UK, was quick to assure clients that it was protected by its own balance sheet. But the disclosure from the US parent sparked panic among investors that other banks could be facing similar problems after many invested in large amounts of debt during the pandemic.
The value of this debt plummeted last year during a global slump in bond markets, leading to speculation that many banks could face big losses if they are forced to sell their portfolios as SVBs.
The slide in SVB shares spread to major US banks, with JP Morgan shares down 7 percent this week, Citigroup down 7.1 percent, Morgan Stanley down 7.2 percent, Goldman Sachs it plunged 7 percent and Bank of America fell 11 percent. .
European banks were also affected, with shares of Deutsche Bank falling 7.4 percent, and France’s Societe Generale and BNP Paribas falling 4.5 percent and 3.8 percent, respectively.
Valued at £37 billion just a year ago
Silicon Valley Bank (SVB) is a crucial lender to healthcare and technology startups in the US.
Founded in 1982 and headquartered in the Californian city of Santa Clara, the financier is one of the largest and oldest banks in Silicon Valley and manages most of the area’s local depositories. Its collapse marks a swift fall from grace for a lender that was valued at more than £37bn a year ago.
At the end of last year, it had around £175bn in assets.
It focuses primarily on lending cash to technology firms and offering services to private equity and venture capital groups to invest in the sector.
Its UK arm has supported several notable technology groups, including review website Trustpilot and software company Learning Technologies.
Chief Greg Becker found himself struggling to bolster confidence in the bank, as the rapidly escalating crisis caused many of his backers to withdraw their money, leaving him facing a cash crunch.
In a hastily arranged call on Thursday, Becker, 52, advised SVB’s embattled patrons and founders to “stay calm,” saying “the last thing we need is for them to panic.”
Collapse is the latest blow for Britain’s tech queen
‘Queen of Tech’: Vin Murria
The so-called queen of technology has suffered another blow with the collapse of Silicon Valley Bank.
Vin Murria is a board member of the collapsed bank’s British arm, 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 vice president of the ad agency 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 £750m, making her and the company’s investors a fortune . But SVB’s failure is another blow to her reputation. Fears are also now mounting about what the bank’s demise means for the British companies it backed.
Over the years, he has invested in a number of companies, including pension platform PensionBee and money transfer group Wise.
But a PensionBee spokesman said yesterday that its relationship with SVB was minimal. A spokesman for Wise, the foreign exchange app firm, said: “We have minimal exposure to SVB through a credit facility they are part of along with six other major banks, and a small cash balance in a operating corporate account”.
SVB UK reassured investors, stating that it was an independent entity with a separate balance sheet and governance structure.
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