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

Almost 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 the Chinese financial sector, SPD Silicon Valley Bank has played a crucial role in establishing a lending environment for entrepreneurs, offering advice and assistance to local institutions since it was established a decade ago.

Despite fire sales of SVB’s loan book to First Citizens Bank and its UK operation to HSBC, no buyers have emerged for SVB’s stake in the Chinese business, which continues to operate.

“In terms of the foreign stake in the venture bank, we’re communicating with Chinese regulatory authorities and [US regulator] FDIC, and the next step will be to resolve it in accordance with laws and regulations,” said Jade Lu, president of SPD Silicon Valley Bank, in an emailed response to the Financial Times.

“During the process, the normal business operation of SPD Silicon Valley Bank will not be affected,” she added.

The fate of Shanghai-based SPD Silicon Valley Bank offers a test for local regulators and their communication with American counterparts, illustrating the complicated aftermath of SVB’s collapse as well as China’s desire to build up its finance and tech sectors.

Discussions among Shanghai’s municipal government; Shanghai Pudong Development Bank, SVB’s local partner; and the China Banking and Insurance Regulatory Commission have run aground, largely because of regulatory hurdles, said two sources familiar with the discussions.

Under China’s commercial banking rules, the collapse of SVB, the parent company, means it can longer remain a shareholder in the joint venture. However, given the fanfare with which the joint venture was launched in 2012, authorities in China are reluctant to allow it to fold.

In a recent memoir, Ken Wilcox, former chair of SVB and a former board member of the Chinese operation, said Chinese officials valued the lending model of SVB and wanted other banks to learn from its expertise. The joint venture helped foster other local lenders including Bank of Hangzhou and Beijing Zhongguancun Bank, an important source of loans for tech companies.

Chinese banking rules exclude a few potential buyers. A bank cannot hold controlling stakes in more than two incorporated banking entities, ruling out candidates such as HSBC, which acquired SVB UK for £1 days after its parent collapsed.

HSBC, incorporated 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 Shanghai Pudong Development Bank, the partner in the joint venture, to take full control.

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

“There’s less urgency on the China side potentially, as according to the company’s own statement, the joint venture bank is operating in a normal, standalone manner and with no pressing liquidity issues,” said Fei.

“On the FDIC side, they can’t really force somebody to buy it since it’s a very niche asset . . . you have to have a China strategy and knowhow about China’s tech and start-up community to be the right fit.”

The lack of communication between regulators has added to the uncertainty. “The communication and co-ordination channel [has been] established, but how quickly or effectively they are exchanging views [over the stake resolution] is difficult for an outsider to tell,” said Fei.

The Shanghai municipal government, CBIRC and FDIC did not respond to requests for comment.

The joint venture bank, registered with Rmb2bn ($290mn) in capital, reported a Rmb52mn profit on revenue of Rmb401mn in 2022. The bank’s total assets were Rmb23.2bn yuan as of the end of 2022, a tiny fraction of Shanghai’s total Rmb23tn in banking assets last year. Software and information services start-ups account for a third of its clients, closely followed by manufacturers and retailers.

“A US bank with a certain tech portfolio is an ideal candidate to take over,” said one 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],” said Fei.

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