Britain’s chancellor is preparing a dramatic intervention to provide a cash lifeline to dozens of tech companies next week as he seeks to contain the damage from the collapse of Silicon Valley Bank.
Jeremy Hunt said there was “a serious risk” to tech and life sciences companies using SVB’s UK bank, many of which could struggle to pay salaries and bills next week.
“We will present immediate plans to ensure that the short-term operational and cash needs of Silicon Valley Bank UK customers can be met,” the Treasury said in a statement at 7:30 a.m. Sunday.
But Hunt went further, saying there was a need for “a longer-term solution” to ensure Britain’s tech companies weren’t destroyed by the collapsed bank.
SVB UK has 3,300 UK customers, including start-ups, venture capital-backed companies and funds, according to people familiar with the bank. The British government has declared in December that the country was home to “more than 85,000 startups and scale-ups”.
Asked if he would guarantee 100% of deposits, Hunt told the BBC’s Laura Kuenssberg: ‘We want to find a way that minimizes – or if possible – avoids any losses to these incredibly promising companies.
Meanwhile, Prime Minister Rishi Sunak repeated the Bank of England’s assertion that the collapse of Britain’s SVB bank did not pose “a risk of systemic contagion”.
But he told reporters ahead of a defense summit in the UK, US and Australia: ‘We are working to recognize the anxiety and concerns of bank customers and to make sure we can work to find a solution that secures operational cash and people’s cash. flow needs.
He said the Treasury was working “at pace” to deliver a plan. Asked if he was confident BoE Governor Andrew Bailey was overseeing a strong regulatory environment for UK banks, Sunak said, “Yes.”
On Sunday, the UK government was trying to push through a takeover of SBV UK to prevent the damage from spreading through the tech sector, with a deep-pocketed Middle Eastern buyer already showing interest.
Hunt has ruled out a bailout of SVB’s UK branch and instead focuses first on supporting cash flow from the many tech groups with deposits in the bank.
The Chancellor said he had talks with Bailey and Sunak late in the day on Saturday. He wants to have a final plan in place by Monday.
Tech companies, many of which tried to withdraw their money on Friday, risk losing their deposits above £85,000 if SVB is placed in the BoE’s resolution regime.
Hundreds of UK-based tech executives and investors have urged Downing Street to intervene, warning that many companies face an “existential threat” because they do business with SVB’s UK unit.
Sunak says he wants to make Britain ‘the next Silicon Valley’ and, according to government insiders, he is determined to contain the fallout for the tech sector from the bank’s collapse.
The Bank of England announced on Friday that Silicon Valley Bank UK was about to enter insolvency, following actions taken by its parent company in the United States, adding that it had a limited presence in the United Kingdom. and did not perform essential functions for the financial system.
But the Treasury said: “The government recognizes that, given the importance of SVB to its customers, its failure could have a significant impact on the liquidity of the technology ecosystem.”
Deviating from the post-crisis resolution framework could cause tensions with the BoE. The BoE did not immediately respond to requests for comment.
Rachel Reeves, shadow chancellor, said on Sunday that establishing the problem facing tech companies was vital and that a range of options should be considered by Hunt, including guaranteeing all deposits or “working with the government American on a bailout” for the bank.
On Saturday, more than 200 startup founders and executives signed an open letter to Hunt, warning that “the majority of us as tech founders are running numbers to see if we are potentially technically insolvent.” . By Sunday the number had risen to more than 300, with signatories saying they employed more than 15,000 people and had raised venture capital funds totaling £5.5billion.
A separate group of at least 30 venture capital funds with a presence in the UK have also pledged their support for SVB, in the event of a bailout, including Accel, Sequoia Capital, Index Ventures, Atomico, LocalGlobe and General Catalyst.
“In the event that SVB-UK were to be purchased and capitalized appropriately, we would strongly support and encourage our holding companies to resume their banking relationship with them,” the VCs said.
Many UK start-ups have done business with SVB because it offered start-up debt that traditional lenders would not. The terms of these loan agreements often included an obligation to keep cash on deposit with the SVB. Some venture capitalists claim that there are fewer alternatives to SVB in the UK than in the US.
“The majority of the most exciting and dynamic tech companies do business with SVB and have little or no diversity in where their deposits are held,” the tech company letter states.
“This is a real crisis moment for UK start-ups,” said Dom Hallas, executive director of Coadec, a lobby group representing UK-based tech companies. “Without a clear way forward by Monday, the risk will increase – it is essential the government has a plan in place by then.”