Over $1.5 billion transferred abroad from Israeli banks due to concerns of judicial coup
In the money management industry, it is estimated that private clients have transferred billions of shekels from Israel in recent weeks. Together with the companies' transfers, the sum sits at approximately $3 billion
"Recently we have been receiving many inquiries from private individuals and companies who wish to open accounts at UBS. The applicants see the process as a strategic step serving their interests in the long term," said Ido Ben-Haim, Market Area Head Israel at Swiss bank UBS, diplomatically describing what is happening in Israel over the past two weeks.
Ben-Haim is among dozens of players in wealth management (family offices), private investment banking, as well as CFOs of high-tech companies with whom we spoke and who are trying to walk a fine line so as not to create unnecessary and dangerous hysteria. On the other hand, they cannot deny what they are seeing, which is an Israeli government pushing through with a judicial coup. The recurring theme heard time and again, from companies to private individuals, is that there is concern regarding an "increasing level of risk and possible restrictions on capital movements".
While there are those who are remaining patient and are not taking action, others are not hesitating. Calcalist revealed earlier this week that 37 companies made the decision to withdraw $780 million from Israel, but after collecting more figures, it seems that this number actually stands at $1.5 billion. At the same time, private clients - most of them wealthy high-tech individuals, but not only - withdrew an aggregate sum of several billion shekels. The owners of family offices and companies that specialize in wealth management spoke of increased transferring of funds and investment portfolios to foreign banks.
"I have been transferring money abroad over the past two weeks. I estimate that I have already transferred $100 million," said an owner of a local family office.
“I estimate that I have transferred 10% of assets under management in our family office to accounts abroad over the past two weeks," noted a senior partner in one of the largest family offices in Israel, an office that only works with clients with assets in excess of $28 million (NIS 100 million).
Unprecedented panic
Conversations with foreign banks also confirm this trend. "Even in 2003 (during the second intifada) we didn’t see such interest and such a transition of customers as in the past two weeks," a source at one of the foreign banks operating in Israel told Calcalist. "We are being approached by customers of all types, even Individuals and companies from all industries, not just high-tech. We are forced to reject many who do not have the minimum amount required to open an account."
"The numbers in the last week and a half are simply ridiculous. I alone spoke to 150 people, these are not weekly volumes of inquiries in the banking sector, certainly not in private banking," said a senior executive at one of the foreign banks operating in Israel. "The buzz is incomparable to any situation in the past that I can remember, neither during war time nor in economic crises. We are also being approached by young individuals from the high-tech sector but also older people who are thinking about their savings. We also received several inquiries from law firms that grouped their clients together so that they can meet the minimum threshold required to open an account. From the questions people are asking we understand that these are not people who operate in private banking, they are not familiar with it. They never thought about a bank account abroad and now they are asking if the government will be able to take their money away if it's held at a foreign bank.”
Obviously, in 2003 the Israeli economy didn't have much to lose because there simply wasn't that much money here and there weren’t many people that could even open an account in a foreign bank. In recent years, Israel has become one of the countries with the highest growth rate of new millionaires thanks to the high-tech industry. Part of the money that flowed into the companies also reached the pockets of employees and founders, so that today Israel is ranked in the top ten in the world in millionaires per capita. According to a report by the Tax Authority, in 2021 and the first half of 2022, high-tech companies netted a total of $14 billion (NIS $50 billion).
According to estimates, foreign banks have already surpassed their annual goals of accounts opened by Israelis, and it's only mid-February. The major banks in the wealth management market such as Credit Suisse, UBS and Goldman Sachs require a minimum of $5 million to open accounts. Banks such as Safra, Rothschild, Julius Baer will also settle for smaller amounts of $1 million to $3 million.
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In the money management industry, it is estimated that private clients have transferred billions of shekels from Israel in recent weeks. Together with the companies' transfers, the sum sits at approximately $3 billion (NIS 10 billion). Evidence of these transfers can be seen in the strengthening of the dollar against the shekel, which reached a peak of 3.54 shekels to the dollar and the weakening of the bond market over last week. The stock market has also been volatile. Not all transfers have an impact on the stock market and foreign exchange rates since at this stage, according to the evidence, much of the funds being transferred were already denominated in dollars.
Meanwhile, after the tension reached a peak at the beginning of the week during the large demonstration in Jerusalem and President Yitzhak Herzog's call for talks, things have calmed down a bit and among high-tech companies there is even talk of halting the transfer of funds abroad until the picture becomes clearer. "Everything done so far has been an attempt to take action with as little harm to Israel and its economy as possible, and also to stick to reversible actions," a senior official in the high-tech industry told Calcalist. "However, if after halting to see if negotiations do indeed begin and the legislative process stops, it will turn out that this is not the case, the wave will renew and become more violent."
The real concern is not only the amounts that are leaving Israel, but rather the funds that are not entering at the moment and maybe won't enter at all. These amounts are much more difficult to quantify. These are yields from companies' current operations that will remain in foreign banks and will not be converted into shekels. But above all, these are investments that are not currently being made in Israeli startup companies out of a decision to wait due to the instability and the threat of a judicial coup.
