The shekel is continuing its sharp appreciation against leading currencies, breaking new thresholds despite major losses on Wall Street, the US government bailout of insurance giant American International Group (AIG), the bankruptcy of Lehman Brothers Holding, and the sale of Merrill Lynch to Bank of America. The shekel-euro exchange rate fell below NIS 5.00/€ with the shekel-dollar exchange rate nearing NIS 3.50/$ in early morning foreign currency trading Wednesday. The Euro then rose to NIS 5.03/€, with the dollar rising in trading to NIS 3.53/$ in late morning hours.
The shekel has depreciated less than the other currencies which have been affected by the US dollar's downturn in international markets, and it is expected to continue to appreciate against the dollar, but Israeli banks are nonetheless poised to minimize any damage that may be caused to the Israeli currency.
Stocks rise and fall
In the Tel Aviv Stock Exchange, stocks went up by 2 percent but came back down again by close to 3 percent Wednesday. The MAOF index plunged 2.9 percent to 874 points and the Tel Aviv 100 dropped by 2.4 percent to 771 points. The Tel-Tech index went up by 0.3 percent.
"We're in for a hard time globally. The powerhouse of the world economy is going into a recession for a while. That's going to hurt everybody."
Overall trade volume was NIS 1.9 billion.
International Bank of Israel disclosed its Lehman Brothers exposure, assets which are exposed to negative impacts, as €8.6 million in Eurobonds which are due to mature during 2009. Other Israeli banks have also disclosed their exposure to Lehman Brothers, with Bank Hapoalim reporting an exposure of $109 million, Bank Leumi an exposure of $88 million, and Israel Discount Bank an exposure of $57 million.
Bank of Israel Governor Stanley Fischer convened the heads of Israel's banks Wednesday morning to strategize with banks in order to minimize damage from the US economic fallout. The Bank of Israel and the Finance Ministry have said they are ready to thwart a similar crisis in the Jewish State, and are keeping an eye on markets around the world.
Chairman of the Banking Association, Moshe Perl, said that whatever happens to the US economy will have an effect in Israel, noting that 30 percent of Israeli exports are sold in the United States, and that about 25% of the tourism in Israel comes from America.
'It can't happen here'
Yet Dr. Yitzhak Klein, Director of the Israel Policy Center and writer for the INN blog "A State of the Nation" says that Israelis should not worry about experiencing a similar economic disaster. "It can't happen here, the kind of meltdown of the financial sector that's taking place in the States," Klein said. "Banking regulation in Israel is excellent."
Klein added that while Israel will not undergo a recession similar to that in the US, "we're in for a hard time globally. The powerhouse of the world economy is going into a recession for a while. That's going to hurt everybody."
The Israeli Credit Insurance Company (ICIC) reported a whopping 45 percent increase in unpaid debts by US customers to Israeli exporters in the third quarter of 2008 as compared to the corresponding quarter of 2007. The ICIC predicts Israeli exporters will witness increasing credit risks in the coming months, due to the worsening US financial crisis and the expected impact on the economy.