SVB collapse hits ‘Israel’, Gulf hard, US banking faltering

By Al Mayadeen English
Source: Agencies
13 Mar 2023 20:01
4 Shares

Silicon Valley Bank's collapse sounds the alarm in the Israeli tech sector and Middle Eastern stock indices.

The main entrance of Silicon Valley Bank (SVB) in Menlo Park, California, March 10, 2023 (Reuters)

"Israel" and several Gulf states are already feeling the effects of Silicon Valley Bank's collapse on Friday, Al-Monitor reported.

California-based Silicon Valley Bank was closed on Friday. The bank was put under "receivership" by the Federal Deposit Insurance Corporation of the US government, a procedure wherein regulators take over a company's assets to aid creditors in recovering money in default.

The decision was made after Silicon Valley Bank (SVB), the US' 16th-largest bank, encountered major financial difficulties, which started as a result of the US Federal Reserve's aggressive recent interest rate hikes to combat inflation. When borrowing costs increased, investors, especially those in Silicon Valley tech firms, grew increasingly unwilling to take risks.

Startups, which make up the majority of Silicon Valley Bank's customers, started withdrawing money last week, depleting the bank's capital and sparking an all-out bank run. By the end of Thursday, customers had taken out an astounding $42 billion. The bank even looked for a buyer on Friday but failed to find one.

"Israel" affected by SVB collapse

It is noteworthy that the bank served numerous Israeli businesses, and its collapse has caused alarm in the Israeli tech sector, according to Al-Monitor.

The Times of "Israel" reported that Israeli banks Bank Leumi and Bank Hapoalim sought to assist corporations in transferring cash out of the SVB prior to its collapse, with Bank Hapoalim reportedly assisting Israeli clients in bringing $1 billion to "Israel".

Israeli occupation Prime Minister Benjamin Netanyahu had also reassured Israeli clients of SVB, particularly tech firms, that the occupation government will provide assistance to affected Israeli businesses, as per his office.

In the same context, market statistics indicated that some Middle Eastern stock indices dipped marginally on Monday as a result of the SVB collapse, Al-Monitor highlighted.

Bloomberg reported on Sunday that the Royal Group investment group, headed by UAE National Security Adviser Prince Tahnoon bin Zayed Al Nahyan, contemplated acquiring Silicon Valley Bank's British arm. However, according to the BBC, the British bank HSBC eventually made the purchase on Monday.

Moreover, most stock markets in the Gulf ended lower on Monday, extending losses from the previous session as the collapse of SVB raised fears of a fresh financial crisis, Reuters reported.

According to Fadi Reyad, Chief Market Analyst at CAPEX.com, the failures in the US banking sector continue to weigh on GCC stock markets and add to the uncertainties around US monetary policy.

"Energy price movements remain under observation as well and could add to the pressures," he said.

Saudi Arabia's benchmark index (.TASI) dropped 0.8%, weighed down by a 1.5% fall in Al Rajhi Bank (1120.SE) and a 0.8% decrease in Retal Urban Development Co (4322.SE).

In the kingdom, all banking shares were in red including Arab National Bank (1080.SE), which was down 5.9%.

Dubai's main share index (.DFMGI) closed 0.9% lower, with blue-chip developer Emaar Properties (EMAR.DU) retreating 2.9%.

In Abu Dhabi, the index (.FTFADGI) was down 1.6%.

Oil prices - a key catalyst for the Gulf's financial markets - fell $4 as the collapse of Silicon Valley Bank weighed, but a recovery in Chinese demand provided support.

Elsewhere, the benchmark Qatar index (.QSI) declined 1.5%.

Outside the Gulf, Egypt's blue-chip index (.EGX30) slid 3.1%, dragged down by a 3.9% tumble in top lender Commercial International Bank (COMI.CA).

US banking system faltering

The bankruptcy of Silicon Valley Bank raises fears that the United States may face another financial crisis similar to the one that occurred in 2008. It is noteworthy that Signature Bank in New York also shuttered its doors on Sunday.

San Francisco-based First Republic has been able to meet withdrawal demands with the help of additional funding from JPMorgan Chase & Co, the mid-cap lender's executive chair, Jim Herbert, told CNBC.

Herbert's comments, however, did little to stymie losses in the stock, which was last down 67% at $28.05 amid multiple trading halts.

Other regional lenders also tumbled, with Western Alliance (WAL.N), KeyCorp (KEY.N), Comerica Inc (CMA.N), Huntington Bancshares Inc (HBAN.O), and PacWest Bancorp (PACW.O) down between 16% and 29%, triggering multiple trading halts for volatility, as reported by Reuters.

The KBW regional banking index (.KRX) slipped 5.4%, and the S&P 500 banking index (.SPXBK) fell 6%.

"The real issue for the industry is that there is a crisis of confidence in the stickiness of deposits and when that becomes dislocated, things can move very quickly," said Christopher McGratty, head of US Bank Research at investment bank KBW.