The party's ending in Tel Aviv, too
A year has passed since the market meltdown began, a year in which iconic institutions have disappeared - Bear Stearns, to name one, and in which trillions of dollars in value have evaporated from the global banking system.
In the merry month of May, some 600 employees of Tel Aviv's big investment banks were packing their bags. Workers from Excellence Nessuah, DS Apex and Migdal Capital Markets turned off their computers, leaving a few people on duty just in case, and stormed for the airport. Destination: Turkey. Purpose: Fun.
That was last year and the market was booming. Today the remnants of the 600 still employed wouldn't even think of a joint trip to Eilat, let alone Antalya.
A year has passed since the market meltdown began, a year in which iconic institutions have disappeared - Bear Stearns, to name one, and in which trillions of dollars in value have evaporated from the global banking system. Tel Aviv has been relatively spared: Its benchmark index, the TA-25, has fallen by "just" 14% while the Nasdaq dropped 19%, London's FTSE lost 23%, Frankfurt's DAX fell 25%, and the Paris CAC-40 tumbled 34%.
As for the banking system, the locals were hurt by the crisis that began with American banks lending too much money to too many dubious homebuyers with dubious creditworthiness.
A year ago, the Tel Aviv-based brokerage IBI estimated that Bank Hapoalim held $3 billion worth of prime mortgage-based securities. Because the mortgages were "prime," Hapoalim wasn't exposed to the subprime crisis and its results wouldn't be affected, IBI predicted.
IBI got it wrong. Hapoalim was the worst hit among Israel's banks and ultimately sold its portfolio of the mortgage-based securities at a total (meaning, unrecoverable) loss of $1.3 billion. It could have elected to keep the portfolio and hope prices would improve, but the bank's management decided it was better to accept the loss and move on. The market hates uncertainty, after all.
The hit reduced Hapoalim to a loss of NIS 1.5 billion for the first quarter of 2008. Like its bigger brethren Citigroup, UBS and many others, it had to scramble for capital. These woes and iffy management cost Bank Hapoalim NIS 10 billion from its market cap, losing it the coveted title of "Israel's biggest bank." Now Leumi can claim the crown, at least in terms of market value.
Citi, by comparison, wrote down its investments by $14 billion in the first quarter alone and fired 9,000 people. Its first-quarter loss amounted to $5.1 billion, following a $10 billion loss in the quarter before. In the first quarter of 2007 it had netted $5 billion.
Israelis can take comfort in the thought that the pain here has been slighter. Even though the five big banks have lost NIS 16 billion of their value in a year, none are in danger of disappearing, as happened to Bear Stearns. Even the gigantic loss at Bank Hapoalim left it no less stable. Over in the United States, tens of thousands of finance-sector personnel have lost their jobs, while here the numbers are marginal. But everybody knows that if the crisis gets worse, layoffs will mount here as well.
Demand for workers in the capital market fell by 30% in the second quarter from the previous quarter, and by 27% compared with the same period a year ago, says Starting Point, a personnel placement company specializing in finance and accounting. Base pay remains roughly the same compared with the first quarter - but the bonuses are another story altogether.
In 2007 bonuses were a major part of a capital market worker's take-home pay, and today they're a quarter of that, if the worker is lucky, says "Shlomi," who markets study and mutual funds for one of the investment banks. The base pay for a worker at an underwriting company is usually NIS 10,000 to NIS 15,000 a month, and last year bonuses ran at NIS 50,000 to NIS 90,000. This year NIS 15,000 is a lot.
Forex-market dealers gross NIS 9,000 to NIS 17,000 a month but got bonuses as high as NIS 100,000 last year. This year the ceiling seems to be NIS 35,000.
"The capital market is a cyclical business. Easy come, easy go, and the signs show that the party is over," shrugs "Eli," who works for a foreign bank. "Once if a client abroad asked why I never dropped by, that was reason enough to hop on a plane. Now I have to justify the trip."