Are UK shares financially exposed to Silicon Valley Bank?

Christopher Ruane dips into this morning’s spate of stock market announcements about UK companies with exposure to the failed Silicon Valley Bank.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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The dramatic collapse of US lender Silicon Valley Bank — owned by SVB Financial — last week could significantly impact some companies that had money deposited with the bank.

It will take time to know how much cash customers get back.

US regulatory assurances and a takeover of Silicon Valley Bank UK unveiled today may hopefully mean that companies with deposits at the US or UK bank will ultimately get them back in full. Meanwhile, though, a company with large financial exposure to the failed bank could still face risks such as cash flow difficulties and reduced investor confidence.

Takeover of SVB UK

This morning, HSBC announced that its UK ring-fenced subsidiary HSBC UK Bank plc is purchasing Silicon Valley Bank UK Limited. As of Friday, SVB UK had loans of around £5.5bn and deposits of about £6.7bn. Last year it recorded a pre-tax profit of £88m.

Yet HSBC paid just one pound. That might turn out to be a bargain for it – or a costly headache given the speed of the transaction.

Exposure of UK companies

Despite that takeover, some London-listed businesses may still have exposure to the implosion of Silicon Valley Bank if they held accounts with the main US operation, not the smaller British bank. Firms have been clarifying their positions today in stock market announcements.

Imaging company Polarean has requested that its shares are temporarily suspended on AIM while it seeks to clarify the impact. It stressed that it has “sufficient cash outside of SVB to meet its immediate liquidity needs”.

Naked Wines had exposure of less than £0.6m of cash that, prior to last week’s US shutdown, it considered to be at risk and potentially uninsured in the event of a Silicon Valley Bank failure. But Naked Wines also holds £14m in a cash sweep account for which the US bank acted as custodian. The wine retailer’s contract states that its ownership of these funds ought to be recognised in the event of a bank failure.

Learning Technologies Group said its exposure to the US and UK bank “does not have a material effect on its financial position”. As of Friday, though, £11.7m was on deposit with the US and UK banks, including £9.4m with the US arm. It has requested withdrawal but received only £0.3m in total at the time of today’s statement.

Diaceutics said that as of last Thursday it held approximately £22m with the bank, of which 90% was held in the UK operation. It has been trying to get its money out but “has been unable to access any of its funds held by SVB”.

Eagle Eye Solutions had a partially drawn loan facility at the UK bank. It says it currently has no requirements to draw down more cash. It had some cash deposited with the US arm but says it expects to suffer no impact from this, following US regulatory action.

Risk management

Other companies may release more details of their exposure to the US or US banks.

As an investor, I diversify across a range of shares. But I will continue to keep an eye out for any announcements affecting shares I own. Especially in a small or medium-sized company, heavy exposure to a single bank can be highly problematic when things go wrong there.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Learning Technologies Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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