Not since my own reckless risk-taking back at Barings in the nineties have we seen a bank sold for £1. That is until this week, when the princely sum was paid by HSBC to rescue the UK arm of Silicon Valley Bank (SVB).
Whilst the news comes as a huge sigh of relief for UK tech start-ups that bank with SVB, it also raises the question of how and why?
SVB is the largest bank failure since the 2008 Global Financial Crisis. It’s the second-largest banking failure in the history of the United States.
As to how? The bank’s overriding business strategy was that interest rates would remain low and we’ll lend to companies that benefit from a low-interest rate environment – growth and tech stocks. Putting all your eggs in one basket sounds a little crude but it’s not far from the truth.
Nobody told the FED, who have been raising rates aggressively now for some time. Deposits started leaving the bank and they had to raise capital to offset fleeing deposits as well as suffering a $1.8 billion loss on treasury bonds whose values were demolished by the FED rate hikes.
My own sorry story that ended in bank collapse, one step up from bank failure, was slightly over 28 years ago. In the intervening period, there has been a series of changes to the banking and financial environment to make matters more transparent, banking safer, and regulation better.
As to the why? Exactly the same reasons as 28 years ago – bad decisions, poor controls, inefficient regulation, poor governance, and a host of other control mechanisms that have failed.
FTX collapsed in November 2022. It’s only March 2023. Whilst different, surely one suggests banks take a closer look at themselves.