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:
HSBC-SVB UK deal fails to initially reassure markets
UK branch of bank bought for just £1 as taxpayer protected
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?
Please use Chrome browser for a more accessible video player
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.
Please use Chrome browser for a more accessible video player
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.
Sir Alan Bates has told Sky News that the government’s new Capture Redress Scheme is “half-baked”.
The Post Office scandal campaigner, who may also be a victim of Capture, accused officials of not learning lessons from previous compensation failures.
Capture was a piece of faulty computer software used in about 2,500 branches between 1992 and 1999 before the infamous Horizon scandal.
Many sub-postmasters made up potentially false accounting shortfalls from their own pocket, with dozens, at least, convicted of stealing.
Please use Chrome browser for a more accessible video player
Sir Alan Bates reaches settlement with govt
Sir Alan welcomed the launch of the first ever Capture Redress Scheme last week “in general”.
However, he added: “It does seem to have gone off half-baked with almost none of the lessons that should have been learnt from the failures of the other Postmaster Schemes having been applied when compiling it.”
Sir Alan Bates, who has settled his redress claim with the government in connection with Horizon, also confirmed he may have been a victim of Capture.
He said: “I have documentation which shows that a PC running Capture was part of the inventory when we purchased our sub-post office and I know it was used until it was replaced by the infamous Horizon system toward the end of 2000.”
Despite this, Sir Alan said that – with the information he has about the scheme and making a claim – “it does seem I may not be able submit one”.
Please use Chrome browser for a more accessible video player
Will Post Office victims be cleared?
Under the current rules, it appears claimants must submit a fully itemised claim before the Department for Business and Trade (DBT) will decide if they qualify – a process Sir Alan described as “mad”.
“We could spend a year compiling a claim only for the DBT to say we weren’t eligible in the first place.”
He called for a two-stage process: first to confirm eligibility, then to allow victims to build their case with legal support – a model he says would save time, money and avoid unnecessary legal costs.
The revelation that Sir Alan may have been a Capture victim – and didn’t realise until later on – raises fresh concerns about how many others remain unaware.
In a statement to Sky News, a government spokesperson said: “After over two decades of fighting for justice, victims will finally receive redress for being impacted by the Capture software and we pay tribute to all of those who have worked to expose this scandal.
“All eligible applicants will receive an interim payment of £10,000. In exceptional circumstances, the independent panel can award above £300,000, which is not a cap.
“We have been in contact with Sir Alan’s legal representative and stand ready to provide further information to help all claimants.”
Please use Chrome browser for a more accessible video player
‘This waiting is just unbearable’
It comes as documents seen by Sky News suggest that the Post Office knew about faults in Capture computer software before it was rolled out in 1992.
Notes from a meeting of “the Capture steering group” held in February – months before the system was introduced to branches – described files as being “corrupted”.
It highlighted that: “If the power was switched off when a file was open it would be corrupted. In this situation data should be checked and reinput.”
Please use Chrome browser for a more accessible video player
‘All we want is her name cleared’
Another fault mentioned in the meeting notes was if “part of the system was closed early, to produce client summaries any additional transactions might not be captured for that day”.
“If a high error rate was detected the software would need to be reworked.”
A document called “Capture Troubleshooting Guide” from April 1993 – over a year after the steering group noted faults – again described “corrupt data” such as incorrect transaction values.
It concluded that the “cause” of this was “switching off the computer or a power cut (even if only for a few seconds) whilst in the Capture programme”.
It also put forward instructions to remedy the fault.
Rupert Lloyd-Thomas, campaigner for Capture victims, said: “The Post Office knew … in 1992, long before the launch, that Capture could be zapped by a power cut.
“They did nothing about it.”
Read more UK news:
How a cup of coffee led Sky News to sex offender on the run
NHS trust and ward manager to be sentenced over patient’s death
Steve Marston
Steve Marston, who was convicted of stealing from his Post Office branch in 1998 after using Capture, said the information “didn’t come as any surprise”.
“They’ve known since the very beginning it should never have been released,” he added.
A Post Office spokesperson said: “We have been very concerned about the reported problems relating to the use of the Capture software and are sincerely sorry for past failings that have caused suffering to postmasters.
“In September 2024, Kroll published an independent report which examined the Capture software that was used in some Post Office branches in the 1990s and we fully co-operated with Kroll throughout their investigation.
“We are determined that past wrongs are put right and are continuing to support the government’s work in this area.
“Post Office has very limited records relating to this system and we encourage anyone who has Capture related material to share it with Post Office and the Criminal Cases Review Commission.”
The proposed £1.6bn takeover of a big chunk of ITV by Sky would be the biggest consolidation in British broadcasting in more than 20 years, and reflects fundamental changes in viewing habits and commercial realities.
For Sky, a deal that brings together Ant and Dec with Gary Neville and Jamie Carragher would make it the UK’s largest commercial broadcaster, and strengthen its hand in the battle with US streaming giants that have upended the entertainment business.
For ITV’s shareholders, who have seen the value of their investment decline as advertising revenue, like viewers, has migrated online, it may be a chance to say, “I own a terrestrial broadcaster, get me out of here.”
Money latest: Mortgage price war predicted
Neither Sky or ITV would publicly discuss who made the initial offer, and both stress that talks are at an early stage, but privately, both sides emphasise the mutual opportunity.
For Sky, owned by US giant Comcast since 2018, there is the opportunity to create a larger pool of content and subscribers.
The deal would see it acquire ITV’s media and entertainment business, including its free-to-air channels and public sector broadcaster (PSB) licence, which runs to 2034, as well as the ITVX streaming platform, which has 40 million registered users.
Ant and Dec host I’m A Celebrity… Get Me Out Of Here! on ITV Pic: ITV
The ITV brand is likely to be retained, and the two companies run separately, but Sky would look to leverage its commercial and technology strengths.
ITV’s PSB licence includes the requirement that ITV’s app be “available, prominent and easily accessible” on online platforms, a crucial shop window as viewers access content directly.
Added to Sky’s existing 13 million subscribers for largely pay-walled content in the UK, it would add muscle as the broadcaster competes for attention, subscription revenue and advertiser spend.
The acquisition would be a restatement of commitment to Sky from Comcast. Having paid £31bn for Sky in a bidding war with Disney seven years ago, it wrote down that investment by more than £6bn in 2022, and earlier this year announced the sale of Sky Deutschland.
While it is navigating the conclusion of exclusivity deals with content providers, including with HBO that gave it rights to hits including Succession, the £5bn renewal of Premier League rights this season underlined the centrality of sport to Sky’s offer.
Sky would bring its own content and rights, such as those for Premier League football, to the table. Pic: PA
Scale matters because even companies as prominent in the UK as Sky and ITV are competing with giants, both for audiences and advertisers.
Netflix has 301 million subscribers worldwide and annual revenues approaching $40bn. Amazon, the largest retailer in the world, is now an entertainment content provider. In the US, Warner Bros. Discovery is considering a sale, having already rejected reported offers worth more than $60bn.
Google and Meta, meanwhile, gobble up to 60% of all UK advertising spend, a shift in the last decade that has hit ITV particularly hard.
US platforms dominate the streaming space. Pic: iStock
When it was founded 70 years ago, the third channel was the only way advertisers could reach television viewers. Today, it and Sky are competing for a slice of a shrinking pie, with one source citing an estimate that their combined UK advertising revenue is nine times smaller than Google and Meta’s.
Any proposed deal will face regulatory scrutiny from Ofcom and the Competition and Markets Authority, but both parties will argue that these commercial realities mean consolidation would strengthen the broadcast sector rather than weaken it.
ITV still generates critical and commercial hits and live moments. Last year, the largest audiences for sport (England’s Euro 2024 semi-final), drama (Mr Bates v the Post Office) and entertainment (I’m a Celebrity) were all on ITV.
Translating that into a commercial model that satisfies investors has proved difficult, with the general drift of the UK economy not helping. The 19% bump in the share price on news of the proposed takeover may be a welcome series finale.
Elon Musk could be on track for a $1trn (£761bn) pay package – if Tesla meets a series of extremely ambitious targets over the next 10 years.
The world’s richest man has the potential to become a trillionaire after the controversial plans were approved by 75% of the company’s shareholders.
It would be the largest corporate pay package in history.
However, it won’t be easy. As part of the agreement, Musk will need to deliver 20 million Tesla vehicles over the next decade – more than double the number churned out over the past 12 years.
He will be tasked with dramatically increasing the company’s valuation and operating profits.
Please use Chrome browser for a more accessible video player
Musk closer to trillionaire status
Another requirement is for Tesla to roll out one million AI-powered robots – despite the fact it hasn’t released a single one so far.
Musk will also need to come up with a succession plan on who will replace him as the chief executive of Tesla.
As each step is successfully completed, he will receive more company shares and his ownership stake will rise – potentially from 13% now to almost 29%.
And even if Musk falls short of some of these targets, he could end up earning a lot of money.
Figures from Forbes magazine suggest the 54-year-old already has a net worth of $493bn (£375bn) – and while that means he has more money than anyone else on the planet, he isn’t the richest person in history… yet.
That title belongs to John D Rockefeller, the railroad titan who had a wealth of $630bn (£480bn) back in 1913 – when adjusted for inflation.
Please use Chrome browser for a more accessible video player
The X Effect
Why?
Now is the moment Tesla wants to innovate, develop into robotics, self-driving and embrace the growth of artificial intelligence (AI).
It’s seeking a visionary leader to spearhead this move. And a lot of Tesla’s market value is tied up in this ambition.
Tesla’s board of directors, who oversee the management of the business, are adamant that only Musk can make the lofty ambitions a reality.
Some believe there’s no one else like Musk.
More shares in the company are “critical to keep Musk at the helm to lead Tesla through the most critical time in the company’s history”, said financial services firm Wedbush.
“We believe this was the smart move by the board to lay out these incentives/pay package at this key time as the biggest asset for Tesla is Musk … and with the AI revolution, this is a crucial time for Tesla ahead with autonomous and robotics front and centre.”
Read more money news:
Bank of England holds interest rate
M&S reveals cost of cyber attack
Opposition
Not everyone is in favour of the pay package.
Major investor advice firm Institutional Shareholder Services (ISS) warned the 10-year pay agreement reduces the board’s ability “to meaningfully adjust future pay levels in the event of unforeseen events or changes in either the performance or strategic focus of the company over the next decade”.
In a note, ISS said: “The high value of each tranche could also potentially undermine Musk’s desire to achieve all goals and create significant value for shareholders”, and that the goals “lack precision”.
Musk has described ISS and another major adviser, Glass Lewis, as “corporate terrorists”.
There was speculation he would walk away from the business if the package was not agreed on.
-
Sports2 years agoStory injured on diving stop, exits Red Sox game
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports3 years agoButton battles heat exhaustion in NASCAR debut
-
Sports3 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment1 year agoHere are the best electric bikes you can buy at every price level in October 2024