The collapse of Silicon Valley Bank (SVB), which has historically played a key role in giving Chinese tech start-ups access to US money, has turned a bromance into a nightmare for many of its clients and investors, according to industry sources.
On a visit to the office of the bank’s joint venture with Shanghai-backed Pudong Development Bank on Monday by the Post, there were few signs of visible trouble, as staff came in and out of their place of work to grab cups of coffee.
The joint venture bank said on Saturday that it is a separate entity registered in China and its balance sheet is independent of SVB’s.
In the illuminated entrance to SPD Silicon Valley Bank situated on the 21st floor of the office building, there is a poem written in Chinese calligraphy by Tu Guangshao, Shanghai’s former vice-mayor, which conjures up a rosy future for the merger of US money with China technology.
In the poem, “a gift” to the joint venture in 2015 when US funds were pouring into China’s tech landscape, Tu writes that SVB and Shanghai Pudong Development Bank can “play their role” and that the combination of technology and finance “brings hope of great harvests”.
That future now looks more dystopian after the Santa Clara, California-based bank was seized at the weekend by the Federal Deposit Insurance Corporation (FDIC) amid a run on the bank.
In an effort to avoid contagion, the US Treasury, the Federal Reserve and the FDIC jointly announced on Sunday night that depositors of the failed SVB would have access to all of their money starting on Monday, while announcing new facilities to backstop deposit withdrawals across the banking system.
But the collapse has nevertheless shaken trust and confidence in the US banking system, analysts say.
“Many Chinese tech companies with US dollar funding … will be worried about how far those accounts will be protected,” said Paul Haswell, partner at Hong Kong-based law firm Seyfarth Shaw.
“If we find there is considerable exposure for Chinese companies, then we could see them face restrictions in future funding options, and limiting them to RMB funds would limit their international ambitions.”
Jeff Chen, managing director at BDA Partners, an investment banking advisor for Asia, said “Before [the US Federal Reserve’s intervention], people were very concerned by how many Chinese tech companies had opened accounts at SVB, although the proportion of their funds in the bank is [expected to be] relatively small.”
“Many [Chinese tech firms] have struggled with financing over the past year or so,” said Chen, who added that the collapse could spur more companies to diversify financial risks by “putting their money in more banks instead of relying on one or two”, which could benefit banks in Asia and Europe.
SVB had become a popular place for many Chinese start-ups and venture capital funds to park their US dollar funds.
One person familiar with the situation who declined to be named due to the sensitivity of the issue, said a bigger crisis has been averted for now due to the decision by regulators to protect deposits.
A second source, who also declined to be named, said SVB’s collapse was “worse than a horror movie” although noted the Fed’s efforts to prevent contagion.
SVB was a popular destination for Chinese tech companies for two main reasons.
“First, the US dollar funds investing in these tech companies had a good relationship with SVB and secondly, SVB provided high quality financial services to tech companies,” said Yang Haiping, a researcher at the Securities and Futures Research Institute of the Central University of Finance and Economics in China.
Some Chinese tech companies disclosed on Sunday and Monday that they have limited deposits at the bank, but the bigger picture remains unclear.
According to calculations by the Post based on corporate announcements, at least 13 Hong Kong-listed tech and biotech firms have deposits totalling US$217.23 million at SVB, with amounts ranging from US$400,000 to US$175.5 million. South China Morning Post