‘It was frantic’: the scramble to save SVB UK and avert a banking crisis

From the moment Silicon Valley Bank collapsed on Friday afternoon, banking regulators knew they had just two days to shore up confidence and prevent contagion spilling over in the UK.

In offices, spare bedrooms and kitchens across the UK, it was all hands to virtual battle stations as a small army worked through the weekend and well into the early hours of Monday morning to try to salvage the UK arm of the tech lender - or risk turmoil when markets opened.

Ministers, senior regulators and banking executives were running on fumes by the time the deadline approached as they raced to avert a cash crunch that could paralyse start-ups across the UK. The collapse of the California-headquartered bank risked starving its 3,500 UK customers - largely tech firms - of cash, and spooking the wider banking sector.

Bidders, including HSBC and fledgling lender Bank of London, fielded phone and video calls almost every 20 minutes in the middle of the night as officials from the Bank of England and the Treasury officials, and SVB UK's own bosses, tried to hash out details of how their respective takeovers could be executed before the London market opened.

"It was frantic", one person involved in overnight negotiations said. "But it wasn't frantic as in 'We can't solve the problem'. It was frantic because we had until 7am to solve this problem.

"It was all hands on battle stations. Everyone was moving so quickly."

The weekend scramble to rescue Silicon Valley Bank UK (SVB UK) revived memories of the 2008 financial crisis, when regulators had to race to prevent the collapse of Lehman Brothers and a run on bust lender Northern Rock infecting several of Britain's biggest banks, ushering Halifax Bank of Scotland into the hands of Lloyds and part-nationalising Royal Bank of Scotland.

But 15 years on the technological adoption sparked by a pandemic lockdowns have changed the way failing lenders are rescued. Gone are the days of shuttling chairmen and executives to Downing Street for crunch talks.

Instead, most were poised at laptops to coordinate calls and review secure details about the takeover target's own loan book and balance sheet. Even prime minister Rishi Sunak's was monitoring the situation and holding calls with chancellor Jeremy Hunt and the Bank of England during his 15-hour flight to meet president Joe Biden for defence pact talks in San Diego over the weekend.

"It's remarkable - because of the horrible aspects of Covid, we're all 100% available 100% of the time. We can get into virtual meeting rooms, get into virtual data rooms, and sign documents, in real time," the person involved in overnight talks said.

It also meant little to no sleep - including for more than the 100 tech bosses, lobby group members and investors who pushed hard for government intervention, and were waiting on tenterhooks for a deal that would save hundreds of start-ups from being paralysed due to lost cash needed to pay staff and suppliers from Monday morning.

Authorities had two preferred options. Plan A, a private takeover that avoided using any taxpayer cash. And Plan B, put SVB UK into insolvency and mobilise high street banks to offer state-guaranteed loans similar to those offered to struggling businesses during the Covid pandemic.

Executives at SVB UK - which had been ordered to shut its doors by the Bank of England on Friday - launched into action on Saturday morning, asking bankers from the boutique investment bank Rothschilds to tap potential buyers including high street giants NatWest, Lloyds, Barclays and HSBC. Obscure lenders Bank of London and business lender OakNorth also threw their hats in the ring. Non-disclosure agreement were signed, finances reviewed, and calls held with authorities and SVB UK bosses including chief executive Erin Platts.

Eventually, HSBC, OakNorth and Bank of London - which was leading a consortium of private equity backers including Carlyle and Fortress - submitted bids for the stricken lender.

Dozens of Bank of England staff, including Bank of England governor Andrew Bailey and Sam Woods, worked into the early hours of Monday morning - alongside at least 30 Treasury officials, the chancellor and City minister Andrew Griffith - to coordinate the sale overnight. Many brought crucial experience with them, having worked on the bank bailouts during the 2008 financial crisis.

Hiccups started to emerge, though, including the fact that NatWest, which processed SVB UK's payments, had shut off its services on Friday night. Once permissions to revive payments were secured, bidders also realised SVB UK was running on its bust US parent bank's technology.

It meant emergency coordination with US regulators - who had seized and taken control of the American parent bank on Friday afternoon - to ensure they would ringfence the technology assets for the potential UK sale. Some executives feared they would have to fly to Washington to complete the deal, though eventually, a virtual meeting completed the transfer.

There were also unique challenges for bidders. At clearing bank Bank of London, which only launched in November 2021, executives had to prove they could raise more capital from investors to support an expanded customer base.

Meanwhile, regulatory exemptions would have to be made for lenders like HSBC, which planned to put complex corporate customers from SVB UK into its ringfenced bank that is meant to primarily serve retail customers. UK ring-fencing rules, which were introduced in the wake of the financial crisis, are meant to protect everyday customers deposits from riskier operations like investment banking. The government agreed to waive those restrictions.

It was 4am on Monday before officials secured the deal and made their decision: HSBC, which already had a strong balance sheet and would not have to raise more capital, was the safest bet, and secured the takeover for a nominal £1.

By 5am, rivals were formally notified, and preparations were made for an announcement by 7am - an hour before the London markets opened.

It was chancellor Hunt who took to Twitter for official confirmation of the deal. "This morning, the government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected, with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise," he said.

SVB UK was rescued, its customers deposits saved, and authorities avoided further fallout, without a loss to the public purse.

Sleep will be high on the agenda for most negotiators, but SVB UK customers and their lobby groups are proposing a toast. "For founders looking to celebrate having access to functional banking services after this weekend's madness, Coadec is hosting drinks tonight," the start-up industry body's executive director Dom Hallas said on Twitter. "DM me for details."