Fate of Silicon Valley Bank’s Chinese venture hangs in balance

Nearly two months after Silicon Valley Bank’s collapse, the fortunes of its pioneering Chinese joint venture, SPD Silicon Valley Bank, are still in balance.

A rare type of U.S.-China joint venture in China’s financial sector, SPD Silicon Valley Bank has played a key role in establishing a lending environment for entrepreneurs since its establishment 10 years ago, and has supported local institutions. We have provided advice and assistance.

Despite the sale of SVB’s loan book to First Citizens Bank and the sale of its UK operations to HSBC, no buyer has emerged for a stake in SVB’s China operations and operations continue.

“We are in contact with Chinese regulators regarding foreign stakes in venture banks. [US regulator] The FDIC’s next step is to resolve the matter in accordance with laws and regulations,” Jade Lu, president of SPD Silicon Valley Bank, told the Financial Times in an email.

“SPD Silicon Valley Bank’s normal operations will not be affected during this process,” she added.

The fate of Shanghai-based SPD Silicon Valley Bank provides a test for communication between local regulators and their US counterparts, with the complex aftermath of the SVB collapse and China’s desire to build out its financial and tech sectors. showing aspirations.

Consultations between Shanghai Municipal Governments. Shanghai Pudong Development Bank, SVB’s local partner. China’s Banking and Insurance Regulatory Commission has also run aground largely due to regulatory hurdles, said two of his sources familiar with the discussion.

Under China’s commercial banking rules, the bankruptcy of parent company SVB means that it can no longer remain a shareholder of the joint venture. But given the fanfare the joint venture launched in 2012, Chinese authorities are reluctant to allow the joint venture to wind down.

In a recent memoir, Ken Wilcox, former chairman of SVB and former board member of the China business, said Chinese officials appreciate SVB’s lending model and encourage other banks to learn from its expertise. says he wants it. The joint venture has helped cultivate other local lenders, such as Hangzhou Bank and Beijing Zhongguancun Bank, which are important sources of financing for technology companies.

Chinese banking rules exclude a small number of potential buyers. In a day after the parent company went bankrupt, he acquired SVB UK, ruling out candidates such as HSBC, the bank said he could not hold control of more than two incorporated banking entities. you can’t.

HSBC was founded in 2007 as a local bank in China and also holds a controlling interest in China’s Hang Seng Bank as its parent company. The same rules make it difficult for joint venture partner Shanghai Pudong Development Bank to take full control.

Andrew Fei, a partner at Hong Kong-based law firm King & Wood Mallesons, said there are many potential reasons for the delay compared to the swift resolution of other SVB units.

“According to the company’s own statement, the joint venture bank is operating in a normal and independent manner, there are no immediate liquidity issues, and the urgency on the Chinese side is likely to be low,” Fei said.

“On the FDIC side, it’s a very niche asset, so we can’t force anyone to buy it… we need Chinese strategy and know-how about Chinese technology and the startup community.”

Lack of communication among regulators adds to the uncertainty. “Channels of communication and coordination [has been] established, but how quickly or effectively exchanges occur [over the stake resolution] It is difficult for outsiders to judge,” Fei said.

The Shanghai Municipal Government, CBIRC and FDIC did not respond to requests for comment.

Registered with RMB 2 billion ($290 million) in capital, the joint venture bank reported a profit of RMB 52 million on revenue of RMB 401 million in 2022. By the end of 2022, the bank’s total assets will be RMB 23.2 billion, a small portion of Shanghai’s total assets of RMB 23 trillion. Bank assets last year. Software and information services start-ups accounted for a third of clients, followed closely by manufacturers and retailers.

“U.S. banks with specific technology portfolios are ideal acquisition candidates,” said a person familiar with regulatory thinking and discussions.

“If there are not many interested buyers, they may have a lot of bargaining power. [in terms of price]said Faye.

Additional reporting by Sujeet Indap from New York and Tabby Kinder from San Francisco