Nearly two months after the collapse of Silicon Valley Bank, the fate of its pioneering Chinese joint venture, SPD Silicon Valley Bank, remains in the balance.
A rare type of US-China joint venture lender in China’s financial sector, SPD Silicon Valley Bank has played a crucial role in creating a lending environment for entrepreneurs, advising and assisting local institutions since its establishment ten years ago .
Despite the fire sales of svbAs for First Citizens Bank’s loan book and its UK operations to HSBC, no buyers have emerged for SVB’s stake in the Chinese business, which continues to operate.
“In terms of foreign participation in the venture bank, we are communicating with Chinese regulators and [US regulator] FDIC, and the next step will be to resolve it in accordance with the laws and regulations,” said Jade Lu, president of SPD Silicon Valley Bank, in an email response to the Financial Times.
“During the process, the normal business operations of SPD Silicon Valley Bank will not be affected,” he added.
The fate of Shanghai-based SPD Silicon Valley Bank offers a test case for local regulators and their communication with American counterparts, illustrating the complicated consequences of the collapse of SVB and Chinathe desire to develop their financial and technological sectors.
Discussions between the municipal government of Shanghai; Shanghai Pudong Development Bank, local partner of SVB; and the China Banking and Insurance Regulatory Commission have stalled, largely due to regulatory hurdles, said two sources familiar with the discussions.
Under Chinese commercial bank rules, the collapse of SVB, the parent company, means it can remain a shareholder in the joint venture longer. However, given the hype with which the joint venture was launched in 2012, Chinese authorities are reluctant to allow it to divest.
In a recent memoir, Ken Wilcox, a former chairman of SVB and a former board member of the Chinese operation, said Chinese officials like SVB’s lending model and want other banks to learn from its experience. The joint venture helped boost other local lenders including Bank of Hangzhou and Beijing Zhongguancun Bank, a major source of loans for technology companies.
Chinese banking rules exclude some potential buyers. A bank cannot hold controlling interests in more than two merged banking entities, excluding candidates such as HSBC, which acquired SVB UK for £1 days after its parent collapsed.
HSBC, established as a local bank in China in 2007, also holds a controlling stake in Hang Seng Bank in China as its parent company. The same rules make it difficult for the joint venture partner Shanghai Pudong Development Bank to take full control.
There are many potential reasons for the delay from other SVB units’ speedy resolution, said Andrew Fei, Hong Kong-based partner at law firm King & Wood Mallesons.
“There is potentially less urgency from China, as according to the company’s own statement, the joint venture bank is operating normally, autonomously and without pressing liquidity problems,” Fei said.
“On the FDIC side, they can’t really force someone to buy it since it’s a niche asset. . . you need to have a Chinese strategy and know-how about the Chinese start-up and tech community to be the right person.”
The lack of communication between regulators has added to the uncertainty. “The communication and coordination channel [has been] established, but how quickly or effectively views are being exchanged [over the stake resolution] it’s hard for an outsider to tell,” Fei said.
The Shanghai municipal government, CBIRC and FDIC did not respond to requests for comment.
The joint venture bank, registered with Rmb 2 billion (US $290 million) of capital, reported a profit of Rmb 52 million on revenue of Rmb 401 million in 2022. The bank’s total assets amounted to 23, Rmb 2 billion at the end of 2022, a small fraction of Shanghai’s total Rmb 23 trillion in banking assets last year. Software and information services start-ups account for a third of its customers, followed closely by manufacturers and retailers.
“A US bank with a certain technology portfolio is an ideal takeover candidate,” said a person familiar with the regulatory thinking and discussions.
“If there aren’t many interested buyers, then the buyer may have a lot of bargaining power [in terms of price]Fei said.
Additional reporting by Sujeet Indap in New York and Tabby Kinder in San Francisco
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