On March 10, the activities of Silicon Valley Bank UK were terminated by order of the Bank of England (BoE), which said that the bank did not provide any “critical services” in support of the financial system. Once this event occurred, HSBC purchased the bank for the very cheap price of one pound. But, just a few days following the purchase, HSBC gave its approval for bonuses of several millions of pounds to be given to workers and top executives of Silicon Valley Bank UK.
It was emphasized by the sources that the bonuses would not have been paid out if Silicon Valley Bank UK had not been purchased in a financially sound manner. The exact amounts of the bonuses that were given to Erin Platts, CEO of Silicon Valley Bank UK, and her senior colleagues are unknown at this time; however, insiders have emphasized that the payments were a signal of HSBC’s confidence in the talent base at Silicon Valley Bank UK as well as an effort to retain key staff.
As a result of the BoE’s announcement that it intends to place Silicon Valley Bank UK into a “bank insolvency procedure,” the bank was required to cease making payments and accepting deposits. Prior to this, Silicon Valley Bank UK was instrumental in the growth and support of the innovative economy in the UK. In the meanwhile, the United States banking arm of Silicon Valley Bank has been taken over by the government. In the meantime, Silicon Valley Bank’s parent company, SVB Financial Group, has filed for protection under Chapter 11 bankruptcy while it searches for purchasers for its other assets.
SVB Group’s chief restructuring officer William Kosturos stated that the Chapter 11 process will allow the group to “preserve value” as it evaluates strategic alternatives for its prized businesses and assets. Kosturos stated that the group will be able to “preserve value” if it goes through with the process. Notwithstanding this, both SVB Capital and SVB Securities will continue to do business as usual, both under the direction of their own separate teams.
The Bank of England (BoE) has stopped the operations of Silicon Valley Bank’s United Kingdom branch (SVB U.K.), citing its limited presence and no critical functions supporting the financial system. On March 10, the BoE declared that SVB U.K. would no longer be accepting deposits or making payments and that it would be placed into a Bank Insolvency Procedure. The decision followed the closure of SVB by the California Department of Financial Protection and Innovation.
The BoE explained that a bank insolvency procedure would enable eligible depositors to receive payments up to the protected limit of £85,000 or up to £170,000 for joint accounts through the Financial Services Compensation Scheme as quickly as possible. Bank liquidators would manage the remaining assets and liabilities of SVB U.K. during its insolvency proceedings, with any recoveries distributed to its creditors.
The announcement has raised concerns among several UK venture capitalists (VCs), who have expressed their support for SVB U.K. Index Ventures and Atomico issued a joint statement on March 12 endorsing SVB U.K., describing it as a trusted and valued partner that plays a pivotal role in supporting startups in the UK. The Coalition for a Digital Economy, a UK nonprofit that campaigns for policies to support digital startups, stated on March 11 that a large number of startups and investors in the ecosystem have significant exposure to SVB U.K. and will be very concerned.
Meanwhile, a Castle Hill report published on March 11 revealed that prominent blockchain VCs have over $6 billion in assets at the now-defunct bank. This includes $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm, and $560 million from Pantera Capital.
The closure of SVB U.K. will have significant repercussions for startups and investors who have relied on the bank for financial services. Several prominent blockchain VCs have a substantial amount of assets at the bank, and their exposure to the insolvency proceedings could have a severe impact on the blockchain ecosystem. The closure also highlights the potential risks associated with relying on banks with limited operations and no critical functions in the financial system.