Where are we now, where are we going, and what should we be doing?
The last month has seen the rapid development of a situation in the Silicon Valley Bank (SVB) crisis where tech CEOs, investors, industry bodies, high profile banks, central banks and professional advisors have played a role in the Bank of England’s decision and announcement to apply to place SVB into a formal insolvency procedure. For its customers and other connected parties, this was alerting to say the least.
Industry bodies were galvanized into action and some professional advisors were swiftly engaged both in respect of the transaction, with the potential for insolvency work in relation to SVB and also potentially in relation to the bank’s own clients.
As was the case in the banking crisis of 2008, there has also been a considerable amount of drama played out in the media as panic has taken hold.
Rescuing SVB UK
Fortunately, it soon became clear that a private sector purchase was likely to be agreed. The eventual proposal saw HSBC look to rescue SVB UK by purchasing its shares for the sum of £1, facilitated by the Bank of England using powers that had been introduced at the time of the 2008 global financial crisis.
The edifying point is the pace at which the rescue was achieved, albeit there was very little due diligence able to done in such a small window of time. The move also resulted in stability, which is key to not just the technical sector, but also financial and other markets in general. It is a glowing endorsement of the unified and collaborative approach adopted by those involved that the rescue was able to take place and that the situation was calmed.
Doubtless, most will remember when Lloyds Bank acquired HBOS in January 2009. That turned out to be something of a poisoned chalice in parts. HSBC will no doubt have extracted undertakings and reassurances from the Bank of England, Treasury and Government in case it finds certain unsavoury or less than satisfactory aspects in which it has purchased which were not possible to ascertain as there was no time for any meaningful due diligence .
Other points to take from this rescue were the ability with which both the public and private sectors were able to collaborate as effectively and speedily as they did. Another silver lining from the crisis was the support from SVB UK customers, most of whom indicated they will continue with the bank under the new regime. Bearing in mind that is HSBC, why not?
Moving on to Credit Suisse
That, of course, was not the end of the unsettled week in the banking sector.
The situation with regard to Credit Suisse has been little short of alarming. For such a venerable institution to be brought so low, so fast and by UBS is disturbing.
It is correct to stay that the bank had some issues in recent years, but few anticipated the problems being of such magnitude. It appears that increasing interest rates were the death knell for the bank in conjunction with the market place not having confidence in the senior management of the institution.
There will be finger pointing in the direction of Credit Suisse’s auditors as well as the regulators. Time will tell where that goes, but it is unlikely that we have heard the end of the saga.
One thing that is certain is that central bankers around the world will be praying for stability. They will also be hoping that interest rates rise no further as many businesses, not just banks, will find the cost of the increases unsustainable. This is because interest rates have an adverse impact on liquidity.
Signature Bank
The recent failings (due to a run on the Bank after SBV) of this Bank has caused cryptocurrency firms to scramble to find institutions with which to bank. Ironically, this has caused a significant level of enquiries with Swiss Bank as the regulations there is seen as friendly to such businesses.
Traditional Lenders are wary of anything that does not have a clear regulatory framework. This includes blockchain crypto firms who have to rely on specialist banks.
In the last few years, we have seen a succession of occasions which have tried the financial markets. First of all, there was Covid and its lockdown. At the time, some three years ago, there were predictions of a tsunami of insolvency work. That has not happened, although the amount has increased. At the moment, that seems to be primarily in winding up petitions and Creditors Voluntary Liquidations. There has not been a big uptake in administrations that so many had expected.
The invasion of Ukraine followed, along with inflation, the cost of living crisis, rising energy costs and interest rates, all of which have combined to put massive pressures on UK PLC. Industries such as construction and hospitality have been hit hard.
Consumer confidence has been badly hit by all of the above.
From a business viewpoint, planning ahead in these uncertain times is now vital. Directors and other business leaders should be talking to their creditors, debtors, HMRC, landlords, tenants bank(s) and its customers about the current financial situation.
Whilst company directors will need to be agile, they will also need to take a realistic look at their businesses to see whether it is still relevant to the market place. For example, some business
prospered during lockdown when customers were happy to shop online, but less so now that
lockdown has ended.
Richard Curtin is a Restructuring & Insolvency Partner at law firm Spector Constant & Williams.
