Tel Aviv shares drop as SVB failure triggers cash-flow concern for Israeli startups

Israeli shares dipped on Sunday led by bank and insurance stocks, following the collapse of the Silicon Valley Bank Financial Group, the biggest lender to fail since the 2008 financial crisis.

Tel Aviv Stock Exchange’s benchmark TA-125 index dropped about 3%, while the TA-35 index of blue-chip companies fell 2.7%. The Tel Aviv index of the five largest banks was down 2.4% and the TA-Insurance & Financial Services declined 3.5%.

SVB, the go-to lender of technology startups in Israel and the US, collapsed on Friday, forcing the US federal government to step in and seize its assets. America’s 16th-largest bank failed after depositors hurried to withdraw money last week amid anxiety over its health and its ill-fated decisions as the interest rate environment went up at a fast pace over the past year. It was the second-biggest bank failure in US history after the collapse of Washington Mutual in 2008.

The US bank served many Israeli startups and technology companies, sending fears into the industry that some firms may find it difficult to make payroll payments at some point in the next month if they cannot access the funds they hold at SVB, although the amounts are not yet known.

Long touted as the growth engine of the Israeli economy, the tech sector accounts for around 25% of the country’s total income tax revenue and about 10% of the workforce.

Commenting on the significance of the SVB failure for Israeli startups, Ori Greenfeld, chief strategist at Psagot Investment House, pointed out that an estimated 90% of the deposits left in SVB are not insured.

“This means that many companies have lost access to their raised funds and are already in an acute liquidity crisis,” Greenfeld cautioned. “These companies will have to raise fresh capital quickly, which will make them pay a high price for the money, or they will need to start laying off employees and halting their operations.”

“We will not be surprised at all if in the coming weeks we see an unusual wave of layoffs in the high-tech industry,” Greenfeld added.

Prime Minister Benjamin Netanyahu said Saturday he’d been in touch with senior Israeli tech figures vowing to assist affected companies.

“If necessary, out of responsibility to Israeli high-tech companies and employees, we will take steps to assist the Israeli companies, whose center of activity is in Israel, to weather the cash-flow crisis that has been created for them due to the turmoil,” Netanyahu said in a statement.

Finance Minister Bezalel Smotrich said he was forming a special team to look into the potential consequences for Israel from the collapse, which will include the director general of the Treasury and officials from the Bank of Israel, Securities Authority and Innovation Authority.

NextVision, a maker of micro stabilized cameras, said it managed on Thursday to withdraw almost all of the $2.7 million it held in its account at SVB, according to a regulatory filing to the Tel Aviv Stock Exchange.

Qualitau Ltd, a developer of test equipment for the semiconductor industry, said it held $16.8 million at SVB out of a total of about $22.3 million it has in and outside the US.

In a statement to the TASE, the company disclosed that it has “no information regarding the amounts it will be able to withdraw in the future from the balance of the funds deposited in SVB and in relation to the timing when it will be possible to withdraw these funds.”

“The company believes that despite the material impact of the event, taking into account the cash balance of the customers, the existing balance, and the backlog of orders (…) it is able to continue its activities during the normal course of business.”

Israel’s two largest banks, Bank Leumi and Bank Hapoalim, set up a situation room that has been operating around the clock to help firms transfer their money from SVB — before it was seized — to accounts in Israel. Over the past few days, teams at LeumiTech, the high-tech banking arm of Bank Leumi, have been able to help their Israeli clients transfer about $1 billion to Israel, the bank said.

LeumiTech said it will provide financing assistance and loans to startups and other tech firms that were left without access to credit lines and liquidity due to SVB’s collapse.

“I promise that we will continue to do everything to help and accompany the companies and startups to safely overcome the challenges and continue to support their growth,” said LeumiTech CEO Timor Arbel-Sadras.

To help tech companies in immediate distress, Poalim Hi-Tech opened a hotline offering bridge loans for the purpose of assisting companies in paying salaries in the coming month against their commitment to transfer deposit funds to their bank accounts in Israel.

Meanwhile, venture capital funds hoping that a fast solution will be found in the form of a buyer that will purchase SVB as a going concern or a federal bailout that will quickly get money to affected depositors.

Alan Feld, co-founder and managing partner of Israeli tech investment firm Vintage Investment Partners, called on “regulators globally to allow SVB to be acquired and recapitalized so that this wonderful bank can serve all of us for the next 20 years.”

“Silicon Valley Bank has been a wonderful partner to Vintage and its portfolio funds and companies since we started our firm 20 years ago,” Feld said in a LinkedIn post.

Times of Israel staff contributed to this report.