Blake Morgan has prepared this note to support businesses impacted by the failure and rescue of Silicon Valley Bank (SVB) by HSBC UK.
With some of our clients and the tech sector being impacted, we wanted to produce an update to help any organisations struggling to understand what it means to them and their business.
These are points for consideration should you have a banking relationship with SVB and may have relevance for customers of other banks who are currently experiencing issues or have failed.
In the US, depositors at SVB have been protected and the UK bank has been taken over by HSBC. But, what does the future look like for SVB customers as now part of HSBC’s wider bank? The cultures of the two banks will be very different, and although this acquisition could be a positive development for HSBC, it remains to be seen whether HSBC will mirror the appetite for risk or the terms of SVB.
Practical tips for SVB clients:
- Deposits with SVB UK – These deposits should be entirely secure following the takeover by HSBC. The US Federal Government has confirmed customers will have full access to their cash – a strong signal protection is being provided. However customers who are concerned may wish to consider extracting any deposits before paying back any loans.
- Loans from SVB UK – Borrowers should be reassured that their facilities will run as planned, now underpinned by HSBC, and revolving credit facilities will continue pending any review by HSBC, for example when seeking extensions, drawdowns or renewals. Committed accordions will be fine – however uncommitted depend on HSBC’s discretion. Existing customers of HSBC will likely be in a reasonable position though be prepared for a conversation with HSBC if both SVB and HSBC are lenders in your facilities where there might be exposure “double-ups”. HSBC has the capacity to resolve many of these or to transfer exposures to friendly lenders so this should not cause undue stress, although, depending on the transferability provisions in the documentation, HSBC may well seek to dispose of certain positions mid exposure (and this is not always ideal for borrowers as HSBC will likely be able to transfer the loan to any Financial Institution or fund including distressed debt funds with whom the borrowers will have no relationship). The acquisition of SVB may well put pressure on HSBC’s leveraged loan and sector concentration limits. To limit this risk, borrowers may wish to consider refinancing out of SVB and should check their documentation around a Defaulting Lender or Impaired Agent.
- Subscription facilities – in principle, these should be unaffected, although these exposures are unlikely to sit well in the UK ring-fenced bank and may need to be moved at some point in the future.
- Relationships – if customers have doubts about the relationship, consideration should be given, at some point, to refinancing or changing your agent.
Why did SVB collapse?
The mishaps affecting SVB appear to be specifically related to some particular circumstances whereby the risk and treasury management within the bank allowed a significant asset and liability basis risk – this crystallised into a heavy loss that in turn wiped out the bank’s core capital. In addition, the bank was set up to service technology, software and life science sectors so there was a concentration risk in the balance sheet on sectors under pressure.
However, the markets have been unsettled by SVB’s failure, and we have seen the knock on effects of this with the subsequent failure of New York’s Signature Bank and the issues facing Credit Suisse over the course of this week. Following the £45bn funding deal which Credit Suisse have agreed with the Swiss National Bank these issues appear to have been resolved for the time being, with initial signs suggesting that this has reassured the financial markets.
Impact on non SVB clients
If as a customer, you have a deposit with a smaller bank, now is a good time to consider whether a shift to a major systemically important bank would be beneficial for your individual circumstances. Clients with a deal in execution at the moment, may wish to press to get it closed as soon as possible.
As always, and particularly in the current market, if you are working on something, it is advisable to have contingency plans even if your process is entirely straightforward. If Blake Morgan can be of any further assistance with regards to this, or more generally in relation to banking facilities, please contact our expert team who will be happy to advise on the best strategy for your business.
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