HSBC’s SVB UK buyout: The codenames and secret talks which averted a banking disaster
The low point came on Sunday evening.
For two days and two nights the Bank of England had, alongside the Treasury and its fellow financial regulators, been locked in talks with a stream of potential buyers for the UK branch of Silicon Valley Bank.
With the clock ticking down to the opening of financial markets on Monday morning, things were suddenly looking bleak.
For a time on Sunday morning, it had looked as if a buyer could be found from one of the Gulf states. But those talks had foundered.
Officials had been calling round British banks but they were nervous about stepping in to buy SVB UK.
Would they be liable if anything emerged about the way the bank had done business in previous years? What about anti-money laundering rules – would they be liable there too?
As the questions hung in the air, the Bank began to map through a worst-case scenario.
Far from a normal bank
If it failed to find a buyer then it would have to announce that the bank was insolvent before markets opened on Monday.
Deposits up to £85,000 would be protected by Britain’s deposit insurance scheme, but while this would be sufficient for many “normal” customers in “normal” banks, Silicon Valley Bank was far from being a normal bank.
SVB, which as the name suggests began life on the west coast of the US, was a bank which catered not for regular individuals or for that matter regular businesses, but for the denizens of the tech sector.
Its American branch was the darling of Silicon Valley – the favourite place for its start-ups to bank.
Indeed, some venture capital firms insisted that the companies they were financing would put money there.
Something similar went for the UK arm, which was set up to provide financial services for Britain’s burgeoning tech scene.
Although it was considerably smaller than its American parent, SVB UK had built up accounts with more than 4,000 companies – including many prominent tech firms.
And since the UK’s tech sector is particularly focused on biotech and fintech (finance and medical technology firms respectively) that meant its customer base included some of the country’s most promising start-ups.
But in recent months, the US parent ran into trouble: the rise in global interest rates had caused a sharp fall in the value of bonds in SVB’s balance sheet.
As it sought to rebuild its financial position last week, it announced plans to raise more money from investors.
Read more:
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US authorities step in to protect deposits
The panic spiral
The news triggered a panic about its survival.
Founders and executives began to pull money out of the US bank, and so began a bank run, with customers pulling their deposits out rapidly – both in America and, as news of the bank’s travails spread – in the UK too.
Bank runs are always fast, and SVB UK’s was no exception.
While the UK wing of SVB was far smaller than its American parent (which had $175bn as of December) the speed of its collapse was nonetheless breathtaking.
On Thursday afternoon SVB UK had around £11bn in customer deposits. By early afternoon on Friday customers had withdrawn more than £1bn, leaving just over £9bn.
As Friday afternoon wore on, the stream of withdrawals turned to a flood with a further £3bn being withdrawn by companies desperately worried about their funds.
That was when the Bank of England intervened and took control: with its deposit base having nearly halved in the space of just over 24 hours (to £6.7bn by close of play Friday), it was clear that SVB UK couldn’t survive on its own anymore.
By the time the Bank of England stepped in, executives at SVB UK seemed, as far as the regulators were concerned, to be relieved that they could at least stem the flow of deposits.
There was no question of getting an infusion of cash from the American parent bank (which had already effectively collapsed itself) so the only question was what kind of end SVB UK would face.
Could its demise be processed in an orderly manner or not?
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HSBC purchase ‘best possible outcome’
The potential outcomes
There were, broadly speaking, three potential outcomes.
The first (and by far the most preferable) was to sell SVB UK in its entirety to another bank – ideally a British one, regulated in London.
The second was for a “bridge bank”: the government would take possession of SVB UK and find a way either of running it down over time or running it until it could be sold off.
The third was formal insolvency. The bank would be wound down. Depositors would have the first £85,000 of their deposits insured but anything above that would depend on how much money could be recouped from the insolvency process.
The problem with the latter two options was that both would involve the deployment of public money.
But that Friday evening, with no potential buyers having surfaced, the assumption at the Bank of England was that SVB UK would face insolvency.
Officials made a terse public announcement along those lines, and then they got to work trying to find a buyer.
Hundreds worked through the night
So began a long weekend at the Bank, and the biggest test yet of the “resolution” system put into place following the 2008 crisis, which promised to find a way to neatly wind up (or sell on) a bank in the event of collapse.
Hundreds of officials were drafted in – some in the Bank itself, some working from home, some from the other parts of Britain’s financial regulatory system and some from the Treasury – to find a solution.
Governor Andrew Bailey – who was in Basel, Switzerland, for a regular central banker summit – was involved in all the calls.
Officials worked through the night, catching a couple of hours’ sleep when they could.
The effort was given various codenames: at Threadneedle Street they called it “Operation Cork”, in the Treasury it was “Operation Yeti” and the various potential suitors to SVB UK were also given their own codenames to prevent news of them leaking.
The talks progressed, day and night, from Friday through to Sunday.
While on Friday night insolvency looked like the most likely outcome, as Saturday progressed a few suitors emerged.
For a period it looked as if a buyer would be found in the United Arab Emirates. Then those talks unravelled.
And by Sunday night, the low point, insolvency once again looked like the most likely endgame.
A collapse that threatened to be especially messy
No bank collapse is pretty, but SVB UK’s threatened to be especially messy.
On the one hand, it didn’t have individual customers – so there was no risk of hard-pressed households losing their savings.
This was a business bank, so the main victims would be companies. However, many of those companies had significant deposits at SVB UK.
By the close of play on Friday there were just over 4,000 customers of SVB UK.
Of these businesses, around half had less than £85,000 in their accounts, so would be fully protected by Britain’s deposit insurance scheme, a post-crisis innovation which protects bank customers up to a certain amount.
However, that left just under two thousand businesses with large amounts of money in their accounts – the average deposit of these customers was £3.5m.
Some had far greater amounts, with certain companies having hundreds of millions of pounds.
These companies faced an existential threat if SVB UK had collapsed without a buyer.
While in such insolvencies much of the lost deposits are eventually recouped, it is a slow drawn-out process which invariably causes deep uncertainty and leaves scars among those depositors.
Of even greater worry inside the bank were a set of “fintech” companies which acted as “deposit aggregators”, taking money from customers and then leaving some of that cash in a variety of other bank accounts.
Sky News understands that a number of these companies had significant amounts of customer money at SVB UK.
While those customer deposits would have been protected by deposit insurance in the event of a collapse, it would nonetheless have caused ripples of concern in the financial world.
As the officials worked through the night to find a buyer, they made plans for SVB UK’s formal insolvency. They tried to work out whether they could farm out some of its accounts to other banks, but the talks were difficult.
Then, in the early hours of Monday morning, things started to change.
HSBC’s bid came so late it didn’t get a codename
HSBC, which had surfaced in the negotiations so late that it hadn’t even been given a codename, emerged as a serious buyer.
It wanted certain assurances – that it wouldn’t face onerous anti-money laundering checks for its new customers and that it wouldn’t have to take responsibility for any previous misconduct at SVB UK – but it was willing to buy SVB UK for £1.
By about 1am on Monday, the Bank’s staff, bleary-eyed after a marathon weekend, realised that the worst seemed to have been averted.
HSBC was serious. The lawyers set to work on the contracts.
SVB UK would carry on operating, under the ownership of HSBC, who would gradually incorporate it into their business.
The thousands of customers – tech founders who had been facing potentially catastrophic consequences – would have all their deposits protected.
No public money would be deployed. It was, in the circumstances, about the best possible outcome.
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Deal to save bank shows ‘great resilience in UK’
A UK response that looks, comparatively, like a triumph
On the one hand, said some of those involved, the episode illustrated the strength of Britain’s bank resolution system.
A disaster was averted. No public money was deployed.
In the US, the Federal Reserve was forced to intervene and signal that it was standing behind customer deposits. The American parent faced insolvency; no buyer was found. By contrast, the UK’s response looked like a triumph.
However, the episode underlines a few things.
First, the financial system remains vulnerable to these unexpected shocks.
Second, there are question marks about why tech firms put quite so much money – way more than was insured by deposit protection – into a single bank, and especially about the fact that some were reportedly coerced to do by their financial backers.
Third, given this was yet another earthquake triggered in large part by rising interest rates (the first being Britain’s liability driven investment pensions crisis last autumn), what other bombs are buried in the system?
The final concern is that even as it helped confront this bank collapse, the Treasury is making plans to overhaul Britain’s financial regulation.
Its proposals will, say some economists, pare back some of the controls and rules imposed after the financial crisis.
Some wonder now whether this episode underlines why those controls matter so much.
You probably recall the stories about Leicester’s clothing industry in recent years: grim labour conditions, pay below the minimum wage, “dark factories” serving the fast fashion sector. What is less well known is what happened next. In short, the industry has cratered.
In the wake of the recurrent scandals over “sweatshop” conditions in Leicester, the majority of major brands have now abandoned the city, triggering an implosion in production in the place that once boasted that it “clothed the world”.
And now Leicester faces a further existential double-threat: competition from Chinese companies like Shein and Temu, and the impending arrival of cheap imports from India, following the recent trade deal signed with the UK. Many worry it could spell an end for the city’s fashion business altogether.
Gauging the scale of the recent collapse is challenging because many of the textile and apparel factories in Leicester are small operations that can start up and shut down rapidly, but according to data provided to Sky News by SP&KO, a consultancy founded by fashion sector veterans Kathy O’Driscoll and Simon Platts, the number has fallen from 1,500 in 2017 to just 96 this year. This 94% collapse comes amid growing concerns that British clothes-making more broadly is facing an existential crisis.
A trade fair tries to reignite enthusiasm for the local clothing industry
More on this story:
The modern slaves making our clothes in Leicester
How Leicester’s textile workers are being exploited
Boohoo failed in Leicester supply chain malpractice
In an in-depth investigation carried out over recent months, Sky News has visited sites in the city shut down in the face of a collapse of demand. Thousands of fashion workers are understood to have lost their jobs. Many factories lie empty, their machines gathering dust.
The vast majority of high street and fast fashion brands that once sourced their clothes in Leicester have now shifted their supply chains to North Africa and South Asia.
And a new report from UKFT – Britain’s fashion and textiles lobby group – has found that a staggering 95% of clothes companies have either trimmed or completely eliminated clothes manufacturing in the UK. Some 58% of brands, by turnover, now have an explicit policy not to source clothes from the UK.
Seamstresses in one of the city’s former factories
Clothing industry workers in Leicester
Jenny Holloway, chair of the Apparel & Textile Manufacturers Association, said: “We know of factories that were asked to become a potential supplier [to high street brands], got so far down the line, invested on sampling, invested time and money, policies, and then it’s like: ‘oh, sorry, we can’t use you, because Leicester is embargoed.'”
Tejas Shah, a third-generation manufacturer whose family company Shahtex used to make materials for Marks & Spencer, said: “I’ve spoken to brands in the past who, if I moved my factory 15 miles north into Loughborough, would be happy to work with me. But because I have an LE1, LE4 postcode, they don’t want to work for me.”
Shahtex in Leicester used to make materials for Marks & Spencer
Tejas Shah, of Leicester-based firm Shahtex
Threat of Chinese brands Shein and Temu
That pain has been exacerbated by a new phenomenon: the rise of Chinese fast fashion brands Shein and Temu.
They offer consumers ultra-cheap clothes and goods, made in Chinese factories and flown direct to UK households. And, thanks to a customs loophole known as “de minimis”, those goods don’t even incur tariffs when they arrive in the country.
An online advert for Chinese fast fashion company Shein
According to Satvir Singh, who runs Our Fashion, one of the last remaining knitwear producers in the city, this threat could prove the final straw for Leicester’s garments sector.
“It is having an impact on our production – and I think the whole retail sector, at least for clothing, are feeling that pinch.”
Inside one of the city’s remaining clothesmakers
While Donald Trump has threatened to abolish the loophole in the US, the UK has only announced a review with no timeline.
“If we look at what Trump’s done, he’s just thinking more about his local economy because he can see the long-term effects,” said Mr Singh. “I think [abolishing de minimis exceptions] will make a huge difference. I think ultimately it’s about a level playing field.”
A spokesperson for Temu told Sky News: “We welcome UK manufacturers and businesses to explore a low-cost way to grow with us. By the end of 2025, we expect half our UK sales to come from local sellers and local warehouses.”
Thames Water, the UK’s biggest water provider, has been hit by a record fine by regulator Ofwat.
The company has been fined £122.7m following Ofwat’s “biggest and most complex” investigation.
It follows two investigations related to Thames Water’s wastewater operations and dividend payouts.
Of the total fine, £104.5m – 9% of Thames Water‘s turnover – has been levied for breaches of wastewater rules – just below the maximum 10% of turnover that Ofwat could have applied.
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Pic: istock
Another £18.2m penalty will be paid for breaches of dividend payment rules.
It is the first time Ofwat has fined a company for shareholders’ payments which do not “properly reflect” its performance for customers and the environment.
The fine will be paid by Thames Water and its shareholders, Ofwat said, rather than customers.
‘Unacceptable’ environmental impact
The regulator was highly critical of Thames Water’s handling of wastewater, describing it as having an “unacceptable” impact on the environment.
Its investigation of treatment works and the wider wastewater network uncovered failings which “amounted to a significant breach of the company’s legal obligations” and caused that unacceptable environmental impact.
The company announced a 40% spike in sewage spills in December for the period from January to September 2024.
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Thames Water boss can ‘save’ company
The fine was so large because Ofwat’s chief executive, David Black, said Thames Water “failed to come up with an acceptable redress package that would have benefited the environment”.
“This is a clear-cut case where Thames Water has let down its customers and failed to protect the environment,” Mr Black said.
“Our investigation has uncovered a series of failures by the company to build, maintain and operate adequate infrastructure to meet its obligations.”
As a result, Thames Water is required to agree to a remediation plan with Ofwat within six months.
Another investigation by the Environment Agency into environmental permits at sewage treatment works is ongoing.
Bad news for Thames Water finances
Thames Water serves 16 million customers across London and the South East and has just about fended off effective nationalisation, having secured an emergency £3bn loan. Its debts now top £19bn.
These fines were not factored into Thames Water’s financial planning for the next five years. The company’s chief executive, Chris Weston, told a recent sitting of the Environment, Food and Rural Affairs select committee that Thames Water’s future was dependent on Ofwat being lenient with fines.
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A Thames Water spokesperson said: “We take our responsibility towards the environment very seriously and note that Ofwat acknowledges we have already made progress to address issues raised in the investigation relating to storm overflows.
“The dividends were declared following a consideration of the company’s legal and regulatory obligations. Our lenders continue to support our liquidity position and our equity raise process continues.”
You probably recall the stories about Leicester’s clothing industry in recent years: grim labour conditions, pay below the minimum wage, “dark factories” serving the fast fashion sector. What is less well known is what happened next. In short, the industry has cratered.
In the wake of the recurrent scandals over “sweatshop” conditions in Leicester, the majority of major brands have now abandoned the city, triggering an implosion in production in the place that once boasted that it “clothed the world”.
And now Leicester faces a further existential double-threat: competition from Chinese companies like Shein and Temu, and the impending arrival of cheap imports from India, following the recent trade deal signed with the UK. Many worry it could spell an end for the city’s fashion business altogether.
Gauging the scale of the recent collapse is challenging because many of the textile and apparel factories in Leicester are small operations that can start up and shut down rapidly, but according to data provided to Sky News by SP&KO, a consultancy founded by fashion sector veterans Kathy O’Driscoll and Simon Platts, the number has fallen from 1,500 in 2017 to just 96 this year. This 94% collapse comes amid growing concerns that British clothes-making more broadly is facing an existential crisis.
More on this story:
The modern slaves making our clothes in Leicester
How Leicester’s textile workers are being exploited
Boohoo failed in Leicester supply chain malpractice
In an in-depth investigation carried out over recent months, Sky News has visited sites in the city shut down in the face of a collapse of demand. Thousands of fashion workers are understood to have lost their jobs. Many factories lie empty, their machines gathering dust.
The vast majority of high street and fast fashion brands that once sourced their clothes in Leicester have now shifted their supply chains to North Africa and South Asia.
And a new report from UKFT – Britain’s fashion and textiles lobby group – has found that a staggering 95% of clothes companies have either trimmed or completely eliminated clothes manufacturing in the UK. Some 58% of brands, by turnover, now have an explicit policy not to source clothes from the UK.
Seamstresses in one of the city’s former factories
Clothing industry workers in Leicester
Jenny Holloway, chair of the Apparel & Textile Manufacturers Association, said: “We know of factories that were asked to become a potential supplier [to high street brands], got so far down the line, invested on sampling, invested time and money, policies, and then it’s like: ‘oh, sorry, we can’t use you, because Leicester is embargoed.'”
A trade fair tries to reignite enthusiasm for the local clothing industry
Tejas Shah, a third-generation manufacturer whose family company Shahtex used to make materials for Marks & Spencer, said: “I’ve spoken to brands in the past who, if I moved my factory 15 miles north into Loughborough, would be happy to work with me. But because I have an LE1, LE4 postcode, they don’t want to work for me.”
Shahtex in Leicester used to make materials for Marks & Spencer
Tejas Shah, of Leicester-based firm Shahtex
Threat of Chinese brands Shein and Temu
That pain has been exacerbated by a new phenomenon: the rise of Chinese fast fashion brands Shein and Temu.
They offer consumers ultra-cheap clothes and goods, made in Chinese factories and flown direct to UK households. And, thanks to a customs loophole known as “de minimis”, those goods don’t even incur tariffs when they arrive in the country.
An online advert for Chinese fast fashion company Shein
According to Satvir Singh, who runs Our Fashion, one of the last remaining knitwear producers in the city, this threat could prove the final straw for Leicester’s garments sector.
“It is having an impact on our production – and I think the whole retail sector, at least for clothing, are feeling that pinch.”
Inside one of the city’s remaining clothesmakers
While Donald Trump has threatened to abolish the loophole in the US, the UK has only announced a review with no timeline.
“If we look at what Trump’s done, he’s just thinking more about his local economy because he can see the long-term effects,” said Mr Singh. “I think [abolishing de minimis exceptions] will make a huge difference. I think ultimately it’s about a level playing field.”
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