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| photo: i.cbc.ca |
The UK Treasury and the central bank, Bank of England (BoE), are working to minimize disruptions that may arise from the collapse of Silicon Valley Bank's (SVB) subsidiary in the UK. The US regulator has already closed down SVB due to liquidity problems.
According to a statement quoted by Reuters, the UK Treasury has scheduled a meeting on Saturday (3/11) to discuss the challenges facing UK technology companies affected by the collapse of the bank headquartered in California.
On Friday (3/10), the BoE said it was seeking a court order to apply bankruptcy procedures to SVB UK.
"The government recognizes that technology sector companies often lack positive cash flow as they grow, and that they rely on bank account funds to cover daily expenses," the ministry said.
Two sources familiar with the discussions told Reuters that Rothschild & Co consultants were exploring options for SVB UK amid the threat of bankruptcy.
Over 250 chief executives of UK technology companies signed a letter to UK Chancellor of the Exchequer, Jeremy Hunt. In a copy of the letter read by Reuters, the executives requested government intervention.
"The latest news about SVB's bankruptcy process shows a rapidly increasing threat to the UK technology sector," the letter stated.
"Over the weekend, many of us as technology company founders examined the numbers to see if we were technically at risk of bankruptcy."
Sky News previously reported on Saturday (3/11) that the UK clearing bank, Bank of London, was considering saving SVB's subsidiary in the UK.
Under bankruptcy procedures for banks in the UK, a number of customers are eligible to receive £85,000 or approximately Rp1.58 billion as compensation for funds held by the bank. For joint account holders, the compensation value is higher, at £170,000 or approximately Rp3.17 billion.
Susannah Streeter, head of money and markets division at investment company Hargreaves Lansdown, said in her note that the technology sector would face further surprises next week.
"Emergency talks on potential takeovers will unfold. Regulators are under pressure to negotiate a rescue plan to avoid losses," Streeter said.
The UK Treasury stated that the UK banking system remains strong and resilient. The problems affecting Silicon Valley Bank are specific to the bank and have no implications for other banks operating in the UK, the ministry added.
Read More: The Bankruptcy of Silicon Valley Bank is Beginning to Have an Impact Worldwide
Billions of dollars of customer funds are stuck in Silicon Valley Bank
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| photo: livemint.com |
The US financial authorities have announced that the main office and all branch offices of Silicon Valley Bank (SVB) that were closed after its collapse will reopen on Monday, March 13.
Citing the banking regulator, the Federal Deposit Insurance Corporation (FDIC), Reuters reported that all insured customers will be able to access their funds no later than Monday morning (3/13).
However, according to FDIC data, around 89 percent of the $175 billion worth of funds deposited in the bank as of the end of 2022 are not covered by insurance, and the fate of those funds is still unclear.
According to sources familiar with the matter, the FDIC is seeking other banks willing to merge with SVB, which focuses on financing start-up companies.
Although the FDIC hopes that the merger can be completed on Monday (13/3) to protect uninsured deposits, there is no certainty about the merger, the sources added, requesting anonymity because the information provided is confidential.
SVB Financial, the parent company of Silicon Valley Bank, is reportedly working with investment bank Centerview Partners and law firm Sullivan & Cromwell to find buyers for its other assets, according to separate sources. These assets include SVB Securities, Boston Private wealth management, and equity research firm MoffettNathanson. The sources added that these assets are expected to attract interest from rival banks and private equity firms. SVB has not responded to requests for comment.
Several tech startups, such as video game maker Roblox Corp and streaming device maker Roku Inc, said they had deposits worth hundreds of millions of dollars at the bank. Roku said most of its deposits with SVB were not insured. Roku's stock price fell 10 percent in after-hours trading.
The problems at SVB highlight how the US Federal Reserve and other central banks' efforts to quell inflation by ending the era of cheap borrowing have exposed vulnerabilities in the market. Concerns are spreading in the banking sector.
According to Reuters calculations, US banks have lost more than $100 billion in market value over the past two days, while European banks have lost around $50 billion.
Several analysts predict that the banking sector will face a lot of problems as the SVB case spreads concerns about hidden risks in the sector and its vulnerability to rising interest rates.
"There may be bloodshed next week because... the short-sellers are out there and they will attack every bank, especially the smaller ones," said Christopher Whalen, chairman of Whalen Global Advisors.
The US Department of Treasury said Treasury Secretary Janet Yellen met with banking regulators on Friday (10/3) and expressed "full confidence" in their ability to respond to the situation.
On Friday, the White House said it has confidence and trust in US financial regulators when asked about the failure of SVB.
The origin of SVB's collapse was a rise in interest rates. Higher rates shut off public fundraising through initial public offerings for many startup companies. On the other hand, private fundraising became more expensive, causing some of SVB's clients to withdraw money.
On Wednesday (10/3), SVB sold $21 billion in bonds, mostly consisting of US Treasuries, to redeem customer withdrawals. They also said they will sell $2.25 billion in common and convertible preferred stock to cover the cash drain.
Read More: These Companies were Affected by The Silicon Valley Bank crash
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