The largest bank in the region most associated with the high-tech industry has collapsed, what does this mean for start-ups from Israel? (Photo: GettyImages, Justin Sullivan)
For the information of high-tech people who wish to withdraw funds from Israel: the American financial regulator closed Silicon Valley Bank, the largest bank in the region most associated with the American high-tech industry - Silicon Valley in Northern California, USA, and took over the funds inside it. The takeover comes after the bank's
stock plunged, due to the fact that it was forced to sell assets at a loss, following a decrease in the amount of deposits in it. The deterioration led the American banking system into a spin, and the American media reported 9 more banks that entered the vortex of declines. This is the sale of debt assets
of the bank that led the stock of its parent company, SVB Financial Group, to a sharp drop of about 60% during its trading on the Nasdaq US stock exchange last Thursday, and deepened by about another 69% at the beginning of Friday, until trading in it was stopped. The
company's bonds also recorded record declines, the round of panic among investors Started and led to the sale of shares of other banks.
Even before the CNBC network reported on Friday evening (Israel time) about the American regulator's takeover of the bank, the Wall Street Journal claimed that the American bank might be put up for sale, and the American capital market began to raise questions about the possibility of its rescue by the administration.
While the doubts regarding the bank are being heard, Janet Yellen, the US Treasury Secretary, addressed the issue during her testimony before the House of Representatives committee, saying: "The latest developments concern several banks that we follow very carefully, and when banks experience financial losses it is a matter of concern."
A Brinks truck in front of the collapsed bank.
What will happen to the companies that held money in it? (Photo: GettyImages, Justin Sullivan)
How many Israelis will be hurt?
The number of Israeli start-ups exposed to the bank located in Santa Clara is not yet known, but is estimated to be in the hundreds, due to the fact that it is the largest lender to start-up companies.
As such, in the era of low interest rates, it benefited from the run presented by the same companies in the stock exchanges and fundraisings of 2021.
The rate of deposits to the bank jumped by 86% during 2021 and stood at 189 billion dollars, and even grew to a record of 198 billion dollars in the following quarter.
However, the increase in interest rates increased the cost of deposits for the bank, which uses them to finance the loans it gives, and led it to sell all its debt assets, which were worth 21 billion dollars.
The bank indicated that the sale led it to record a loss (after tax) of 1.8 billion dollars in the first quarter of 2023, and last Wednesday, a day before the parent company's stock plunged, the bank reported that the sale was due to expectations of a continuation of a high interest rate environment along with a downward trend in the level of deposits.
"Customers' cash burn remains high and increased even more in February," the bank said last Wednesday, "resulting in lower-than-expected deposits."
As of the end of last February, the amount of the bank's customer funds stood at $326 billion, a figure that represents a decrease of approximately 4.4% compared to the $341 billion of customer funds in the bank at the end of 2022. The purpose of selling the debt assets, according to the bank, is to "utilize the potential for
high short-term interest rates more, and better protect the net interest income (NII), the net interest margin (NIM), and improve profitability."
Israeli hi-tech companies have not yet officially commented on the incident, but reports surfaced on social media of Israelis working against American companies that kept their money in a closed bank, in which they announce that the bank's details for money transfers are about to change, warn of the possibility of a delay in payments in the coming days, and other messages that cause concern Only among local start-up companies, but also among freelancers who are connected to the bank's customers in the US.
The Israeli banks, on the other hand, continue to benefit from the high interest rate environment for the time being, and are showing record performance.
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