A bail-out of Silicon Valley Bank (SVB) would have looked bad at a time when millions of people are struggling with living costs, a savings expert said following the news that HSBC would buy collapsed SVB’s UK arm.
HSBC’s action will protect UK tech startups and investors from losses following SVB’s insolvency last week and the UK government is collaborating on the purchase to minimise disruption to the tech sector and support confidence in the financial system.
Susannah Streeter, head of money and markets at UK fund platform Hargreaves Lansdown, said: “A Big Tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.”
Signature Bank, a US bank for crypto companies, has also been closed by New York regulators, and Streeter said deposits at SVB and Signature will be guaranteed by the Federal Deposit Insurance Corporation and loan facilities will be provided to other institutions.
But Iain Cunningham, a portfolio manager at Ninety One, has said that the failure of SVB could signal the start of a “broader cycle of delinquency, default and bankruptcy”.
The collapse occurs as economies over the past 12 months have been “rapidly exiting” from the “false equilibrium” that developed after the 2008 Global Financial Crisis and the economic measures that were employed to contain the crisis, such as quantitative easing.
Cunningham writes: “The most speculative ‘investments’ of the prior cycle have already come under substantial pressure, whether it be crypto currencies, NTFs, SPACs or unprofitable technology companies. We are now beginning to see early signs of businesses that built their operating models around the false equilibrium begin to struggle, such as SVB Financial.”
Asset manager DWS, in its ‘CIO Flash’ investor commentary, said global central banks’ sharp interest rate increases to combat inflation had “claimed [their] first prominent victims” but that by taking decisive action, US authorities will “probably have avoided a systemic crisis”.
Nigel Green, CEO of wealth manager deVere Group, said: “It is now doubtful that the Fed will continue with its plan for aggressive interest rate hikes. The next hike was widely expected on March 22 following robust jobs data in January and February.
“We expect the stress in the banking sector, and the wider impact on confidence, now will give the central bank cause for pause on its rate-hike programme.”
He also said the collapse of the bank “brings into question” the Trump-era deregulation of banks, where oversight and capital requirements were reduced. He argued deregulation had led to “reckless risks” by some banks.
Meanwhile, Haakon Overli, general partner at venture capital firm Dawn Capital, welcomed the HSBC acquisition, saying: “The scale and magnitude of the crisis which has been averted in the UK tech sector shouldn’t be underestimated.”
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