The UK chancellor is preparing a dramatic intervention to provide a cash lifeline to scores of tech businesses next week as he seeks to contain the damage caused by the collapse of Silicon Valley Bank.
Jeremy Hunt said there was “a serious risk” to tech and life sciences companies that used SVB’s UK bank, many of which could struggle to pay wages and bills next week.
“We will bring forward immediate plans to ensure the short-term operational and cash flow needs of Silicon Valley Bank UK customers are able to be met,” the Treasury said in a 7.30am statement on Sunday.
But Hunt went further, saying there was a need to find “a longer-term solution” to ensure that tech companies in Britain were not taken down by the collapsed bank.
Asked if he would guarantee 100 per cent of deposits, Hunt told the BBC’s Laura Kuenssberg: “We want to find a way that minimises — or if we possibly can — avoids all losses to these incredibly promising companies.”
Meanwhile Rishi Sunak, prime minister, repeated the Bank of England’s assertion that the collapse of SVB’s UK bank did not present “a systemic contagion risk”.
But he told reporters ahead of a UK, US and Australia defence summit: “We’re working to recognise the anxiety and the concerns customers of the bank have and making sure we can work to find a solution that secures people’s operational liquidity and cash-flow needs.”
He said the Treasury was working “at pace” to deliver a plan. Asked if he was satisfied BoE governor Andrew Bailey was overseeing a robust regulatory environment for UK banks, Sunak replied: “Yes.”
On Sunday, the UK government was trying to push through a takeover of SBV UK to prevent damage spreading across the technology sector, with a deep-pocketed Middle Eastern buyer having already expressed interest.
Hunt has ruled out a bailout of the UK arm of SVB and is instead focusing in the first place on supporting the cash flow of the many tech groups with deposits at the bank.
The chancellor said he had held talks with Bailey and Sunak late into Saturday. He wants to have a final plan in place by as soon as Monday.
Tech companies, many of which tried to pull their money out on Friday, risk losing their deposits above £85,000 if SVB is put into the BoE’s resolution regime.
Hundreds of UK-based tech executives and investors have urged Downing Street to step in, warning that many companies faced an “existential threat” because they banked with the UK unit of SVB.
Sunak says he wants to turn Britain into “the next Silicon Valley” and is said by government insiders to be 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 set to enter insolvency, following action taken by its parent company in the US, adding that it had a limited presence in the UK and did not perform functions critical to the financial system.
But the Treasury said: “The government recognises that, given the importance of SVB to its customers, its failure could have a significant impact on the liquidity of the tech ecosystem.”
Deviating from the post-crisis resolution framework could cause tension with the BoE. The BoE did not immediately respond to requests for comment.
Rachel Reeves, shadow chancellor, said on Sunday it was vital to establish the problem faced by tech companies and that a range of options should be considered by Hunt, including guaranteeing all deposits or “working with the US government on a rescue” for the bank.
On Saturday, more than 200 start-up founders and leaders 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 funding totalling £5.5bn.
A separate group of at least 30 venture capital funds with a presence in the UK also pledged their support for SVB, were it to be rescued, including Accel, Sequoia Capital, Index Ventures, Atomico, LocalGlobe and General Catalyst.
“In the event that SVB-UK were to be purchased and appropriately capitalised, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them,” the VCs said.
Many UK start-ups banked with SVB because it offered debt to early stage companies that traditional lenders would not. The terms of these loan agreements often included a requirement to keep cash on deposit with SVB. Some venture capitalists argue that there are fewer alternatives to SVB in the UK than in the US.
“The majority of the most exciting and dynamic tech businesses bank with SVB and have no or limited diversity in where their deposits are held,” the tech companies’ letter said.
“This is a real moment of crisis for British 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 grow — it’s critical that government has a plan in place by then.”