The SVB rescue is a relief – but lessons must be learnt
The HSBC deal is a win for Jeremy Hunt, but let’s hope he’ll exercise caution over City deregulation,
Let’s start off with the good thing that has emerged from the collapse of Silicon Valley Bank, which handled roughly a quarter of the companies in the UK tech sector and had been threatening a meltdown. The UK arm has been rescued via a deal put together over the weekend by the Bank of England, the government, and HSBC – the bank that is picking up the pieces after “a competitive process” and (so we are told) sparing the taxpayer a nasty wallop in the process.
There is something comfortingly old school about the way this was brokered behind closed doors. The end result is that the business will be shifted to HSBC UK, meaning that depositors will be able to get their money and tech workers their wages. Jeremy Hunt and Rishi Sunak can count this as a pre-Budget win, when a pre-Budget disaster had been a very real prospect.
The pair have spent a great deal of time and political capital bigging up the UK tech sector, with Sunak having talked about his dream of creating a new Silicon Valley (as has just about every prime minister in living memory). They now owe HSBC chief executive Noel Quinn a big favour. Count on him to collect.
SVB’s customers, who will now become customers of HSBC UK, might care to reflect on the virtues of doing business with a very traditional banking group. The question “What were you thinking?” could be directed at those CEOs and CFOs who cosied up to a dodgy bank because – what – they liked its brand? I suppose they would argue that they plumped for SVB because it was a tech specialist staffed by people who “understood” the kinds of businesses that might have triggered red warning lights in more traditional sectors.
It will be interesting to see how HSBC deals with its new clients, and whether they will complain that it doesn’t understand the sector when they encounter the raised eyebrows of its customer relationship managers. Tech is the future, blah blah blah... but tech with a well-considered business model, run by people who understand balance sheets as well as apps, is how you avoid it turning the future into a financial dystopia.
There has been a lot of howling and gnashing of teeth in the US from the venture-capital type of investor – people who just love their privatised profits but prefer losses to be socialised. HSBC has saved the British taxpayer from that.
The root cause of this is the end of cheap money. Increasing interest rates dramatically improves banks’ margins, because (as has happened) they are able to increase the gap between what they offer to depositors and what they charge to borrowers. Trouble is, the latter also increases the number of borrowers running into difficulties, especially in a sector that burns a lot of cash. It’s easy to get away with that if your financing costs are low or even minimal. But that is no longer the case in the wake of the dramatic increase in rates across the world. This is not something they need to teach at a bank such as HSBC.
The SVB affair has exposed fault lines in the global economy and the global financial system. It is a wake-up call. Is the alarm on in Whitehall? One would hope Hunt, Sunak and their colleagues have been paying attention to what the collapse of what had become the 16th-largest US bank, and represents the first major failure since the financial crisis, has thrown into sharp relief.
I rather fear that we need to spell it out, because there are some on the Tory benches that don’t get it. When it comes to banking regulation, and the reform of it, it pays to go carefully. Consult widely and go in with an open mind when it comes to change,
There is something comfortingly old school about the way this was brokered behind closed doors
rather than jumping in with predetermined conclusions, such as “Deregulation is always good and automatically leads to growth.”
There are certainly things the UK could do better in regard to tech. The City of London has become something of a dotcom desert, with Wall Street attracting the most exciting companies. This needs to be addressed. But at the same time, there are also lessons from the financial crisis that need to be recalled, and perhaps relearnt. If Hunt and colleagues do that (the Bank of England never forgot them), then perhaps some good will have come from this dismal episode.
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Floating offshore wind farm approved
Consent has been granted for a floating wind farm off the Pembrokeshire coast that will eventually provide enough power for 4 million homes. Seven 14-megawatt turbines will be built on floating platforms 25 miles out to sea. They are part of a development that could in future see as much as 20 gigawatts of electricity being produced in the Celtic Sea. The Climate
Change Committee, which advises the government on decarbonisation, said offshore wind should form the bulk of Britain’s electricity production by 2035. Known as project Erebus, the new turbines will be erected by Blue Gem Wind, a joint venture between French multinational TotalEnergies and Irish ocean developers Simply Blue Group. The floating platforms use the same turbines as conventional offshore wind farms but they are attached to floating structures secured to the seabed with anchors. This means they can be built further out in deeper waters where the wind is stronger. Construction is set to begin in January 2025 with the turbines in operation by the end of 2026.
Heathrow ready for ‘successful Easter getaway’
Heathrow has sought to reassure families it is prepared for a “successful Easter getaway” after many saw their holiday plans ruined a year ago. The airport said overall passenger satisfaction is “close to pre-pandemic levels”. The punctuality of departing flights in February was “the most consistent it has been in the last 12 months”, while more than 98 per cent of passengers passed through security in under 10 minutes for the second month in a row, according to Heathrow. A failure to recruit and train enough staff to cope with the surge in demand for travel led to chaotic scenes at UK airports during Easter 2022, with long queues and more than 100 flights a day cancelled. Last month, Heathrow’s Terminal 5 recorded its busiest day since before the coronavirus pandemic. The airport said more than 94,000 passengers used the terminal on 26 February. That was its busiest day since 20 December 2019, before the virus crisis began. A total of 5.2 million passengers travelled through Heathrow last month, up from 2.9 million in February 2022.
Pub group puts dozens of sites up for sale
Marston’s Brewery has put dozens of its sites across the UK up for sale. The group, which has more than 1,400 pubs in its portfolio, has put 61 of its sites on the market because it wants to
“maximise returns” by focusing on its core venues. Sites up for sale include pubs in the Midlands, Yorkshire, Sussex and Wales and the sale is being managed by commercial real estate agency Christie & Co. It comes after the chain increased the price of a pint by 45p last year, breaking the £4 barrier in many areas for the first time. Meanwhile, other chains are similarly putting sites up for sale. Wetherspoon opened two pubs over the second half of 2022 and sold 10, which made about £2.9m, and 35 pubs remain up for sale.
Thousands of child trust funds untouched
Hundreds of millions of pounds in child trust funds (CTFs) to help young people financially in early adulthood has not yet been claimed, according to a spending watchdog. The National Audit Office raised concerns that accounts are at risk of becoming forgotten or lost track of by those holding them. It said estimates indicate that more than one-quarter of CTFs have remained untouched for a year or more after their owners turned 18. A CTF is a long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011, which they can access when they turn 18. The government paid more than £2bn into CTFs for 6.3 million children born during this period. Most children received around £250 each from the government at the time their CTF was started, while those from low-income families or in local authority care received an additional £250.
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