Silicon Valley Bank UK saved! UK tech and fintech pantomime can complete the spring season!
As previously published on News Uncut, courtesy of Jasmine Birtles of Money Magpie and regular Daily Mail columnist.
It must be great to have money, status and power. A few phone calls and emails and you can get the Prime Minister of Great Britain,[1] the finance minister, the finance minister, the city minister and the science and technology secretary jump around on their strings like marionettes.[2]
That’s what the British technology and fintech sectors did to avoid their pocket bank – Silicon Valley Bank UK – going bust over the weekend of 11/12. March 2023.[3] Instead it was sold to HSBC for £1 and now it’s business as usual, with technology and fintech companies burning through the money from their latest funding round,[4] continues to make losses and does not bother the scorers with any burdensome corporate tax payments.[5]SVB UK’s staff have been paid their annual bonuses of £15-20m.[6]
The value of this pocket bank has been market tested – it was £1.
That’s about right. The sector has no revenue streams apart from deductions from the face value of card payments, which are extracted by UK merchants and passed on to UK consumers in the form of higher prices, and from the sale of customer data. It has acted as a propagator for authorized push payment scams. To clear a nationwide playing field for it, UK consumers and businesses have had access to cash and branch services cut off.[7]
Having burned through its current round of funding, SVB UK’s clients will have nowhere to go for their money: their “pocket bank” has disappeared and HSBC UK Bank plc’s lending remit is car loans and mortgages, venture capital funding has dried up, and an exit via a IPO is a distant mirage. They can properly enter the liquidation process, only now in June or July, rather than March or April – a fitting finale to this pantomime.
The Daily Telegraph reported that “Government officials ruled out a full taxpayer bailout of the bank”. Jeremy Hunt stated that there was ‘no taxpayer support’, while HM Treasury said ‘no taxpayers’ money is involved’.[8] Words that mask the truth.
The government has relaxed the “ringfencing rules” for this deal. Ringfencing protects taxpayers from subsidizing explosions in international businesses and investment businesses – such as this one – by ensuring that high-risk deals are not booked into the UK domestic arms of the big banks where the current and savings accounts of UK businesses and consumers are held.
SVB’s portfolio of high risk loans (estimated at £4-5 billion, 15-20% of the equity of HSBC UK Bank plc) should be booked OUTSIDE the ring of HSBC Bank plc, but will initially be held INSIDE it, in HSBC UK Bank plc . This allows the SVB UK loan book to be funded with money from UK businesses and consumers – exactly what ringfencing was designed to prevent. It reduces the creditworthiness of HSBC Bank UK plc, puts the money of UK consumers and businesses at increased risk, and makes a call on the Financial Services Compensation Scheme more likely, to fund which HM Treasury would have to issue more gilts for, like all UK consumers and businesses are responsible: If the taxpayers don’t lose the first time as depositors in HSBC UK Bank plc, we could be hammered the second time. That qualifies as “taxpayer support” in my parlance.
The ministers involved in the bailout discussions have dabbled in technology and fintech in the past: they are in conflict and should have stepped back. Instead, they worked all weekend – with representatives from “industry”, the Bank of England, SVB UK and HSBC – to set aside the UK laws introduced after the latest crisis to protect taxpayers.
Only one stakeholder was not invited to this fun party, the one who will pick up the tab if things go wrong: the British public.
[1] A graduate of Stanford, Silicon Valley’s university
[2] accessed 13 March 2023
[3] ‘Pocket bank’: a bank that works on behalf of an industry group or ecosystem, and is mainly owned by market participants within it, who are also its customers, both as borrowers and depositors
[4] A “funding round” is the block of money invested by venture capitalists at each stage of a startup’s progress to an IPO or IPO. There are normally three or four such rounds before the company is listed on the stock exchange, and all the investors and the management withdraw money
[5] Profits, if any, conveniently land on the books of an entity incorporated in Ireland, another unresolved Brexit issue
[6] accessed 20 March 2023
[7] A full explanation of these disadvantages can be found in
[8] accessed 13 March 2023
