Your money-making expert. Financial journalist, TV and radio personality.
Investors are rethinking their predictions for the rise of interest rates after the collapse of Silicon Valley Bank.
HSBC’s purchase of SVB’s UK assets – for £1 – has stablised the situation, but markets now fear they could be stuck between recession on the one hand, and inflation on the other.
MoneyMagpie’s Jasmine Birtles says, “It’s good for the time being but HSBC has bought the British wing of Silicon Valley Bank because it should stop all hell breaking loose. However this is creating nervousness generally among banks customers and I think everybody is going to be watching what happens in America.
Silicon Valley Bank made use of the cheap money that came in through the low interest rate environment that we’ve had since 2008. That environment has now changed and we’re going to have high interest rates for some time to come, I think. This means that the kind of investments that Silicon bank made are mostly not going to be viable going forward and this is going to have ramifications for all sorts of banks and certainly for tech companies and other organisations that relied on the cheap money that flowed from central banks.”
The term Silicon Valley refers to a region in the south San Francisco Bay are, notable for the vast number of tech companies based there. Silicon Valley is a global hub for technological innovation, and has been swept up in the implosion of Silicon Valley Bank, which US regulators shut on Friday.
A sale of SVB UK, which has 3,300 UK clients, including start-ups, venture-backed companies and funds, was the preferred choice of chancellor Jeremy Hunt, avoiding a big government intervention to protect depositors.
“This morning, the government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected, with no taxpayer support,” Hunt wrote on Twitter. “I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.”
The Bank of England said no other UK banks had been “materially affected” by SVB’s collapse and said the banking system remained “safe, sound, and well capitalised.”
Although the UK arm of SVB was relatively small, with just over 3,000 business customers, its collapse would have posed a big risk for a sector seen as pivotal to the UK’s future economic success.
Despite the crash, Jeremy Hunt claims there was “never a systemic risk to our financial stability in the UK.”
Our investment specialist Karl takes a look at what this fall may mean for investors here.