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.
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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.
The cost of having staff is going up this Sunday as the increase in employers’ national insurance kicks in.
Chancellor Rachel Reeves announced in the October budget employers will have to pay a 15% rate of national insurance contributions (NIC) on their employees from 6 April – up from 13.8%.
She also lowered the threshold at which employers pay NIC from £9,100 a year to £5,000 a year, meaning they start paying at an earlier point on staff salaries.
This is on top of the national minimum wage rising, the business relief rate for hospitality, retail and leisure reducing from 75% to 40% and the rising cost of ingredients and services.
Sky News spoke to people working in some of the industries that will be hardest hit by the rise in NIC: Nurseries, hospitality, retail, small businesses and care.
NURSERIES
Nearly all (96% of 728) nurseries surveyed by the National Day Nurseries Association (NDNA) said they will have no choice but to put up fees because of the NIC rise, leaving parents to pick up the shortfall.
The NDNA has warned nurseries could close due to the rise, with 14% saying their business is at risk, 69% reducing spending on resources and 39% considering offering fewer places with government-funded hours as 92% said they do not cover their costs.
Sarah has two children, with her youngest starting later this month, but they were just informed fees will now be £92 a day – compared with £59 at the same nursery when her eldest started five years ago.
“I’m not sure how we will afford this. Our salaries haven’t increased by 50% during this time,” she said.
“We’re stuck as there aren’t enough nursery spaces in our area, so we will have to struggle.”
Karen Richards, director of the Wolds Childcare group in Nottinghamshire, has started a petition to get the government to exempt private nurseries – the majority of providers – from the NIC changes as she said it is unfair nurseries in schools do not have to pay the NIC.
She told Sky News she will have to find about £183,000 next year to cover the increase across her five nurseries and reducing staff numbers is “not off the table” but it is more likely they will reduce the number of children they have.
Joeli Brearley, founder of Pregnant Then Screwed, said parents are yet again having to pay the price for the government’s actions. Pic: Pregnant Then Screwed
Joeli Brearley, founder of the Pregnant Then Screwed campaign group, told Sky News: “Parents are already drowning in childcare costs, and now, thanks to the national insurance hike, nurseries are passing even more fees on to families who simply can’t afford it.
“It’s the same story every time – parents pay the price while the government looks the other way. How exactly are we meant to ‘boost the economy’ when we can’t even afford to go to work?”
Purnima Tanuku, executive chair of the NDNA, said staffing costs make up about 75% of nurseries’ costs and they will have to find £2,600 more per employee to pay for the NIC rise – £47,000 for an average nursery.
“The government says it wants to offer ‘cheaper childcare’ for parents on the one hand but then with the other expects nurseries to absorb the costs of National Insurance Contributions themselves,” she told Sky News.
“High-quality early education and care gives children the best start in life and enables parents to work. The government must invest in this vital infrastructure to make sure nurseries can continue to deliver this social and economic good.”
HOSPITALITY
The hospitality industry has warned of closures, price rises, lack of growth and shorter opening hours.
Dan Brod, co-owner of The Beckford Group, a small southwest England restaurant and country pub/hotel group, said the economic situation now is “much worse” than during COVID.
The group has put plans for two more projects on hold and Mr Brod said the only option is to put up prices, but with the rising supplier costs, wages, business rates and NIC hike they will “stay still” financially.
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Dan Brod, co-owner of The Beckford Group, said the government does not value hospitality as an industry. Pic: The Beckford Group
He told Sky News: “What we’re nervous about is we’re still in the cost of living crisis and even though our places are in very wealthy areas of the country, Wiltshire, Somerset and Bath, people are feeling the situation in their pockets, people are going out less.”
Mr Brod said they are not getting rid of any staff as their business strongly depends on the quality of their hospitality so they are having to make savings elsewhere.
“I’m still optimistic, I still feel that humans need hospitality but we’re not valued as an industry and the social benefit is never taken into account by government.”
Chef/owner Aktar Islam, who runs Opheem in Birmingham, said the rise will cost him up to £120,000 more this year. Pic: Opheem
Aktar Islam, owner/chef at two Michelin-starred Opheem in Birmingham, said the NIC rise will cost him up to £120,000 more in staff costs a year and to maintain the financial position he is in now they would have to make “another million pounds”.
He got emails from eight suppliers on Thursday saying they were raising their costs, and said he will have to raise prices but is concerned about the impact on diners.
The restaurateur hires four commis chefs to train each year but will not be able to this year, or the next few.
“It’s very short-sighted of the government, you’re not going to grow the economy by taxing hospitality out of existence, these sort of businesses are the lifeblood of our economy,” he said.
“They think if a hospitality business closes another will open but people know it’s tough, why would they want to do that? It’s not going to happen.”
The chef sent hundreds of his “at home” kits to fellow chefs this week for their staff as an acknowledgement of how much of a “s*** show” the situation is – “a little hug from us”.
RETAIL
Some of the UK’s biggest retailers, including Tesco, Boots, Marks & Spencer and Next, wrote to Rachel Reeves after the budget to say the NIC hike would lead to higher consumer prices, smaller pay rises, job cuts and store closures.
The British Retail Consortium (BRC), representing more than 200 major retailers and brands, said the costs are so significant neither small or large retailers will be able to absorb them.
Andrew Bailey, the governor of the Bank of England, told the Treasury committee in November that job losses due to the NIC changes were likely to be higher than the 50,000 forecast by the Office for Budget Responsibility (OBR).
Big retailers have warned the NIC rise will lead to higher prices, job cuts and store closures. File pic: PA
Nick Stowe, chief executive of Monsoon and Accessorize, said retailers had the choice of protecting staff numbers or cancelling investment plans.
He said they were trying to protect staff numbers and would be increasing prices but they would likely have to halt plans to increase store numbers.
Helen Dickinson, head of the BRC, told Sky News the national living wage rise and NIC increase will cost businesses £5bn, adding more than 10% to the cost of hiring someone in an entry-level role.
A further tax on packaging coming in October means retailers will face £7bn in extra costs this year, she said.
“This huge cost burden will undoubtedly reduce investment in stores and jobs and is likely to lead to higher prices,” she added.
SMALL BUSINESSES
A massive 85% of 1,400 small business owners surveyed by the Federation of Small Businesses (FSB) in March reported rising costs compared with the same time last year, with 47% citing tax as the main barrier to growth – the highest level in more than a decade.
Just 8% of those businesses saw an increase in staff numbers over the last quarter, while 21% had to reduce their workforce.
Kate Rumsey, whose family has run Rumsey’s Chocolates in Wendover, Buckinghamshire and Thame, Oxfordshire, for 21 years, said the NIC rise, minimum wage increase and business relief rate reduction will push her staff costs up by 15 to 17% – £70,000 to £80,000 annually.
To offset those costs, she has had to reduce opening hours, including closing on Sundays and bank holidays in one shop for the first time ever, make one person redundant, not replace short-term staff and introduce a hiring freeze.
The soaring price of cocoa has added to her woes and she has had to increase prices by about 10% and will raise them further.
Kate Rumsey, who runs Rumsey’s Chocolates in Buckinghamshire and Oxfordshire, said they are being forced to take a short-term view to survive. Pic: Rumsey’s Chocolates
She told Sky News: “We’re very much taking more of a short-term view at the moment, it’s so seasonal in this business so I said to the team we’ll just get through Q1 then re-evaluate.
“I feel this is a bit about the survival of the fittest and many businesses won’t survive.”
Tina McKenzie, policy chair of the FSB, said the NIC rise “holds back growth” and has seen small business confidence drop to its lowest point since the first year of the pandemic.
With the “highest tax burden for 70 years”, she called on the chancellor to introduce a “raft of pro-small business measures” in the autumn budget so it can deliver on its pledge for growth.
She reminded employers they can claim the Employment Allowance, which has doubled after an FSB campaign to take the first £10,500 off an employer’s annual bill.
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National Insurance rise impacts carers
CARE
The care sector has been warning the government since the October that budget care homes will be forced to close due to the financial pressures the employers’ national insurance rise will place on them.
Care homes receive funding from councils as well as from private fees, but as local authorities feel the squeeze more and more their contributions are not keeping up with rising costs.
The industry has argued without it the NHS would be crippled.
Raj Sehgal, founding director of ArmsCare, a family-run group of six care homes in Norfolk, said the NIC increase means a £360,000 annual impact on the group’s £3.6m payroll.
In an attempt to offset those costs, the group is scrapping staff bonuses and freezing management salaries.
It is also considering reducing day hours, where there are more staff on, so the fewer numbers of night staff work longer hours and with no paid break.
Raj Sehgal said his family-owned group of care homes will need £360,000 extra this year for the NIC hike
Mr Sehgal said: “But what that does do unfortunately, is impact the quality you’re going to be able to provide, at a time when we need to be improving quality, but something has to give.
“The government just doesn’t seem to understand that the funding needs to be there. You cannot keep enforcing higher costs on businesses and not be able to fund those without actually finding the money from somewhere.”
He said the issue is exacerbated by the fact local authority funding, despite increasing to 5%, will not cover the 10% rise.
“It’s going to be a really, really tough ride. And we are going to see a number of providers close their doors,” he warned.
Nadra Ahmed, executive co-chair of the National Care Association, said those who receive, or are waiting to access, care as well as staff will feel the impact the hardest.
“As providers see further shortfalls in the commissioning of care services, they will start to limit what they can do to ensure their viability or, as a last resort exit the market,” she said.
“This is very short-sighted, with serious consequences, which alludes to the understanding of this government.”
Government decided to ‘wipe the slate clean’
A Treasury spokesperson told Sky News the government is “pro-business” but has “taken the difficult but necessary decisions to wipe the slate clean and properly fund our public services after years of declines”.
“Our budget choices have already delivered an NHS with falling waiting lists, a £3.7bn rescue package for social care, and vital protection for Britain’s small businesses,” they said.
“We’re making tough choices today to secure a better tomorrow through our Plan for Change. By investing in economic growth and early years education while capping corporation tax, we’re putting more money in working people’s pockets and giving every child the best start in life.”
Donald Trump’s trade war escalation has sparked a global sell-off, with US stock markets seeing the biggest declines in a hit to values estimated above $2trn.
Tech and retail shares were among those worst hit when Wall Street opened for business, following on from a flight from risk across both Asia and Europe earlier in the day.
Analysis by the investment platform AJ Bell put the value of the peak losses among major indices at $2.2trn (£1.7trn).
The tech-focused Nasdaq Composite was down 5.8%, the S&P 500 by 4.3% and the Dow Jones Industrial Average by just under 4% at the height of the declines. It left all three on course for their worst one-day losses since at least September 2022 though the sell-off later eased back slightly.
Trump latest: UK considers tariff retaliation
Analysts said the focus in the US was largely on the impact that the expanded tariff regime will have on the domestic economy but also effects on global sales given widespread anger abroad among the more than 180 nations and territories hit by reciprocal tariffs on Mr Trump‘s self-styled “liberation day”.
They are set to take effect next week, with tariffs on all car, steel and aluminium imports already in effect.
Price rises are a certainty in the world’s largest economy as the president’s additional tariffs kick in, with those charges expected to be passed on down supply chains to the end user.
The White House believes its tariffs regime will force employers to build factories and hire workers in the US to escape the charges.
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The latest numbers on tariffs
Economists warn the additional costs will add upward pressure to US inflation and potentially choke demand and hiring, ricking a slide towards recession.
Apple was among the biggest losers in cash terms in Thursday’s trading as its shares fell by almost 9%, leaving it on track for its worst daily performance since the start of the COVID pandemic.
Concerns among shareholders were said to include the prospects for US price hikes when its products are shipped to the US from Asia.
Other losers included Tesla, down by almost 6% and Nvidia down by more than 6%.
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PM: It’s ‘a new era’ for trade and economy
Many retail stocks including those for Target and Footlocker lost more than 10% of their respective market values.
The European Union is expected to retaliate in a bid to put pressure on the US to back down.
The prospect of a tit-for-tat trade war saw the CAC 40 in France and German DAX fall by more than 3.4% and 3% respectively.
The FTSE 100, which is internationally focused, was 1.6% lower by the close – a three-month low.
Financial stocks were worst hit with Asia-focused Standard Chartered bank enduring the worst fall in percentage terms of 13%, followed closely by its larger rival HSBC.
Among the stocks seeing big declines were those for big energy as oil Brent crude costs fell back by 6% to $70 due to expectations a trade war will hurt demand.
The more domestically relevant FTSE 250 was 2.2% lower.
A weakening dollar saw the pound briefly hit a six-month high against the US currency at $1.32.
There was a rush for safe haven gold earlier in the day as a new record high was struck though it was later trading down.
Sean Sun, portfolio manager at Thornburg Investment Management, said of the state of play: “Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade.”
He warned there was a big risk of escalation ahead through countermeasures against the US.
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Sandra Ebner, senior economist at Union Investment, said: “We assume that the tariffs will not remain in place in the
announced range, but will instead be a starting point for further negotiations.
“Trump has set a maximum demand from which the level of tariffs should decrease”.
She added: “Since the measures would not affect all regions and sectors equally, there will be winners and losers as in 2018 – although the losers are more likely to be in the EU than in North America.
“To protect companies in Europe from the effects of tariffs, the EU should not respond with high counter-tariffs. In any case, their impact in the US is not likely to be significant. It would be more efficient to provide targeted support to EU companies in the form of investment and stimulus.”
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