HSBC’s SVB UK buyout: The codenames and secret talks which averted a banking disaster

Published

2 years ago

March 14, 2023

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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.

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?

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.

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.

Business

Inflation jumps to 3.6% on fuel and food price pressures

Published

6 hours ago

July 16, 2025

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Inflation jumps to 3.6% on fuel and food price pressures

The rate of inflation has risen by more than expected on the back of fuel and food price pressures, according to official figures which have prompted accusations of an own goal for the chancellor.

The Office for National Statistics (ONS) reported a 3.6% level for the 12 months to June – a pace not seen since January last year.

That was up from the 3.4% rate seen the previous month. Economists had expected no change.

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ONS acting chief economist Richard Heys said: “Inflation ticked up in June driven mainly by motor fuel prices which fell only slightly, compared with a much larger decrease at this time last year.

“Food price inflation has increased for the third consecutive month to its highest annual rate since February of last year. However, it remains well below the peak seen in early 2023.”

A key driver of food inflation has been meat prices.

Beef, in particular, has shot up in cost – by more than 30% over the past year – according to Association of Independent Meat Suppliers data reported by FarmingUK.

High global demand alongside raised production costs have been blamed.

But Kris Hamer, director of insight at the British Retail Consortium, said: “While inflation has risen steadily over the last year, food inflation has seen a much more pronounced increase.

“Despite fierce competition between retailers, the ongoing impact of the last budget and poor harvests caused by the extreme weather have resulted in prices for consumers rising.”

It marked a clear claim that tax rises imposed on employers by Rachel Reeves from April have helped stoke inflation.

Balwinder Dhoot, director of sustainability and growth at the Food and Drink Federation, said: “The pressure on food and drink manufacturers continues to build. With many key ingredients like chocolate, butter, coffee, beef, and lamb, climbing in price – alongside high energy and labour expenses – these rising costs are gradually making their way into the prices shoppers pay at the tills.”

Chancellor Rachel Reeves said of the data: “I know working people are still struggling with the cost of living. That is why we have already taken action by increasing the national minimum wage for three million workers, rolling out free breakfast clubs in every primary school and extending the £3 bus fare cap.

“But there is more to do and I’m determined we deliver on our Plan for Change to put more money into people’s pockets.”

The wider ONS data is a timely reminder of the squeeze on living standards still being felt by many households – largely since the end of the COVID pandemic and subsequent energy-driven cost of living crisis.

Record rental costs alongside elevated borrowing costs – the latter a result of the Bank of England’s action to help keep a lid on inflation – have added to the burden on family budgets.

Most are still reeling from the effects of high energy bills.

The cost of gas and electricity is among the reasons why the pace of price growth for many goods and services remains above a level the Bank would ideally like to see.

Added to that is the toll placed on finances by wider hikes to bills. April saw those for water, council tax and many other essentials rise at an inflation-busting rate.

The inflation figures, along with employment data due tomorrow, are the last before the Bank of England is due to make its next interest rate decision on 7 August.

The vast majority of financial market participants, and many economists, expect a quarter point cut to 4%.

That forecast is largely based on the fact that wider economic data is suggesting a slowdown in both economic growth and the labour market – twin headaches for a chancellor gunning for growth and juggling hugely squeezed public finances.

Professor Joe Nellis, economic adviser at the advisory firm MHA, said of the ONS data: “This is a reminder that while price rises have slowed from the highs of 2021-23, the battle against inflation is far from over and there is no return to normality yet – especially for many households who are still feeling the squeeze on essentials such as food, energy, and services.

“However, while the Bank of England is expected to take a cautious approach to interest rate policy, we still expect a cut in interest rates when the Monetary Policy Committee next votes on 7th August.

“Despite inflation at 3.6% remaining above the official 2% target, a softening labour market – slowing wage growth and decreasing job vacancies – means that the MPC will predict inflation to begin falling as we head into the new year, justifying the lowering of interest rates.”

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Chancellor Rachel Reeves considering ‘changes’ to ISAs – and says there’s too much focus on ‘risk’ in investing

Published

18 hours ago

July 15, 2025

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Chancellor Rachel Reeves considering 'changes' to ISAs - and says there's too much focus on 'risk' in investing

The chancellor has confirmed she is considering “changes” to ISAs – and said there has been too much focus on “risk” in members of the public investing.

In her second annual Mansion House speech to the financial sector, Rachel Reeves said she recognised “differing views” over the popular tax-free savings accounts, in which savers can currently put up to £20,000 a year.

She was reportedly considering reducing the threshold to as low as £4,000 a year, in a bid to encourage people to put money into stocks and shares instead and boost the economy.

However the chancellor has shelved any immediate planned changes after fierce backlash from building societies and consumer groups.

In her speech to key industry figures on Tuesday evening, Ms Reeves said: “I will continue to consider further changes to ISAs, engaging widely over the coming months and recognising that despite the differing views on the right approach, we are united in wanting better outcomes for both savers and for the UK economy.”

She added: “For too long, we have presented investment in too negative a light, quick to warn people of the risks, without giving proper weight to the benefits.”

Ms Reeves’s speech, the first major one since the welfare bill climbdown two weeks ago, appeared to encourage regulators to focus less on risks and more on the benefits of investing in things like the stock market and government bonds (loans issued by states to raise funds with an interest rate paid in return).

She welcomed action by the financial regulator to review risk warning rules and the campaign to promote retail investment, which the Financial Conduct Authority (FCA) is launching next year.

“Our tangled system of financial advice and guidance has meant that people cannot get the right support to make decisions for themselves”, Ms Reeves told the event in London.

Last year, Ms Reeves said post-financial crash regulation had “gone too far” and set a course for cutting red tape.

On Tuesday, she said she would announce a package of City changes, including a new competitive framework for a part of the insurance industry and a regulatory regime for asset management.

In response to Ms Reeves’s address, shadow chancellor Sir Mel Stride said: “Rachel Reeves should have used her speech this evening to rule out massive tax rises on businesses and working people. The fact that she didn’t should send a shiver down the spine of taxpayers across the country.”

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The governor of the Bank of England, Andrew Bailey, also spoke at the Mansion House event and said Donald Trump’s taxes on US imports would slow the economy and trade imbalances should be addressed.

“Increasing tariffs creates the risk of fragmenting the world economy, and thereby reducing activity”, he said.

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New electric car grants of up to £3,750 aims to drive sales

Published

1 day ago

July 15, 2025

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New electric car grants of up to £3,750 aims to drive sales

The taxpayer is to help drive the switch to non-polluting vehicles through a new grant of up to £3,750, but some of the cheapest electric cars are to be excluded.

The Department for Transport (DfT) said a £650m fund was being made available for the Electric Car Grant, which is due to get into gear from Wednesday.

Users of the scheme – the first of its kind since the last Conservative government scrapped grants for new electric vehicles three years ago – will be able to secure discounts based on the “sustainability” of the car.

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It will apply only to vehicles with a list price of £37,000 or below – with only the greenest models eligible for the highest grant.

Buyers of so-called ‘Band two’ vehicles can receive up to £1,500.

The qualification criteria includes a recognition of a vehicle’s carbon footprint from manufacture to showroom so UK-produced EVs, costing less than £37,000, would be expected to qualify for the top grant.

It is understood that Chinese-produced EVs – often the cheapest in the market – would not.

DfT said 33 new electric car models were currently available for less than £30,000.

The government has been encouraged to act as sales of new electric vehicles are struggling to keep pace with what is needed to meet emissions targets.

Challenges include the high prices for electric cars when compared to conventionally powered models.

At the same time, consumer and business budgets have been squeezed since the 2022 cost of living crisis – and households and businesses are continuing to feel the pinch to this day.

Another key concern is the state of the public charging network.

Transport Secretary Heidi Alexander said: “This EV grant will not only allow people to keep more of their hard-earned money – it’ll help our automotive sector seize one of the biggest opportunities of the 21st century.

“And with over 82,000 public charge points now available across the UK, we’ve built the infrastructure families need to make the switch with confidence.”

The Government has pledged to ban the sale of new fully petrol or diesel cars and vans from 2030 but has allowed non-plug in hybrid sales to continue until 2025.

It is hoped the grants will enable the industry to meet and even exceed the current zero emission vehicle mandate.

Under the rules, at least 28% of new cars sold by each manufacturer in the UK this year must be zero emission.

The figure stood at 21.6% during the first half of the year.

The car industry has long complained that it has had to foot a multi-billion pound bill to woo buyers for electric cars through “unsustainable” discounting.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said the grants sent a “clear signal to consumers that now is the time to switch”.

He went on: “Rapid deployment and availability of this grant over the next few years will help provide the momentum that is essential to take the EV market from just one in four today, to four in five by the end of the decade.”

But the Conservatives questioned whether taxpayers should be footing the bill.

Shadow transport secretary Gareth Bacon said: “Last week, the Office for Budget Responsibility made clear the transition to EVs comes at a cost, and this scheme only adds to it.

“Make no mistake: more tax rises are coming in the autumn.”