Tel Aviv Shares Decline as SVB Failure Triggers Cash-Flow Worries
On Sunday, Israeli shares declined led by insurance and banking stocks after the collapse of the Silicon Valley Bank Financial Group, which is the biggest lender to go down after the financial crisis in 2008.
There was a 3% drop in the benchmark TA-125 index of the Tel Aviv Stock Exchange (TASE), while a 2.7% decline was recorded in the blue-chip companies’ index, TA-35.
The collapse
There was also a 2.4% drop in the Tel Aviv index of the five biggest banks and a 3.5% fall in the TA-Insurance and Financial Services index.
On Friday, SVB, which had been the go-to lender for tech startups both in the United States and Israel, collapsed.
The US federal government had to step in and seized the assets of the 16th largest bank in America. Last week, depositors had been hurriedly withdrawing their funds.
This was in light of concerns about the bank’s health and the ill-fated decisions it was making, while the interest rates had climbed last year at a rapid pace.
It has become the second biggest failure of a bank in the history of the United States after the downfall of Washington Mutual during the financial crisis in 2008.
Impact on Israel
A number of Israeli tech companies and startups were using the services of the US bank and its collapse sent fears into the industry.
This is due to the fact that it would become difficult for some companies to make payroll in the next month if they are unable to access the funds they have deposited at SVB, but the amounts are unknown as yet.
The tech sector of Israel has been touted as the growth engine of its economy and contributes about 25% of the total income tax revenue of the country and makes up 10% of its total workforce.
Investment strategists highlighted that 90% of the deposits that are in SVB are without insurance, which could have a massive impact on Israeli startups.
They said that it would mean that a lot of companies would not be able to access the funds they have raised and are now dealing with a liquidity crisis.
Expectations
The companies would have no choice but to raise more capital quickly and they would have to pay a high price for it.
Therefore, they may begin to stop their operations and start laying off their workforce. In the coming weeks, there could be an unusual wave of layoffs seen in the tech sector.
On Saturday, Prime Minister Benjamin Netanyahu had said that he had reached out to tech figures in Israel and vowed that they would help affected companies.
He said that high-tech firms in Israel that would have a cash-flow crisis because of the turmoil would be given assistance.
Bezalel Smotrich, the Finance Minister, said that they were forming a special team for looking into the collapse’s consequences for Israel.
This would include officials from the Innovation Authority, Services Authority and Bank of Israel and the director general of the Treasury.
