Israel’s PM Netanyahu agrees to postpone judicial reforms

This is an audio transcript of the FT News Briefing podcast episode: ‘Israel’s PM Netanyahu agrees to postpone judicial reforms’

Marc Filippino
Good morning from the Financial Times. Today is Tuesday, March 28th, and this is your FT News Briefing.

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Israel’s prime minister, Benjamin Netanyahu, has agreed to delay his controversial judicial reforms. And German Leopard tanks are on their way to Ukraine. Plus, a US lender has agreed to buy the failed Silicon Valley Bank, but what do investors think of the deal?

Stephen Gandel
They don’t really like the deal they’re getting. They love the deal they’re getting.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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In Israel, mass protests yesterday threatened to shut the country down. And Israel’s prime minister, Benjamin Netanyahu, caved. He agreed to postpone his highly controversial judicial reforms. To find out more, I’m joined by the FT’s Jerusalem correspondent, James Shotter. Hey, James.

James Shotter
Hi.

Marc Filippino
So, James, is it surprising that Netanyahu backed down?

James Shotter
I think that by Monday it was no longer that much of a surprise. There have been protests building against the judicial overhaul proposed by Netanyahu’s government since it was unveiled in January. But what really brought things to a head in the last couple of days was Netanyahu’s decision on Sunday night to sack his defence minister after he criticised the overhaul and warned of the polarisation it was causing was a threat to national security. There were also, on Monday morning, announcements by various Israeli organisations that they were gonna go on strike. And that relatively quickly began to threaten to paralyse the economy. You know, the international airport shut down, banks closed, shopping mall chains closed. I think at that point the pressure on the government was just so enormous that, you know, even though clearly there are members of the government who are totally committed to this reform, they had to find a way to take the hits, detach the situation and instead they decided to postpone the reforms for a month or so at least.

Marc Filippino
James, can you remind us why these protests got so big? Why were people so upset?

James Shotter
I think there’s two reasons. One is the nature of the reforms themselves, which people worry will leave Israeli governments in position of almost untrammelled power. I mean, Israel already has sort of a constitutional set up where there are very, very few checks on a government with a majority in parliament. You know, there’s no second chamber that can block or review legislation as the president with a veto. There’s no written constitution. Most laws can be passed with a simple majority. And the government reforms would basically weaken the Supreme Court, which is one of the few serious checks. But then I think the second is the people are worried about what governments might do with this power. And this is where, you know, the protests has become not just an expression of concerns about this particular judicial reform, but part of really a battle for the soul of Israel. And I think that is the sort of thing that really for these protests, these, you know, we haven’t seen in Israel for a decade and possibly in the country’s modern history.

Marc Filippino
So, James, I guess the hope is that these protests will cool off now that the reforms have been postponed. But what happens next?

James Shotter
I think one big question is how this plays out now in Netanyahu’s coalition. There are individuals in the coalition who are totally committed to these reforms. And, you know, part of the reason it took him all day to announce these concessions on Monday was that he was locked in very difficult discussions with his post department. So the extent to which the coalition holds together, you know, despite this concession is one key question. The other question is, in what form is the reform, you know, the overhaul comes back, you know, in a month’s time because although Netanyahu said on Monday that he was postponing the overhaul, he also emphasised that it would be passed in some form or another. The question is whether the government can find a form of changes that’s acceptable to the country as a whole, or whether they come back with something that just triggers another round of protests in, you know, a month’s time.

Marc Filippino
James Shotter is in Jerusalem covering the protests in Israel. Thanks, James.

James Shotter
Thanks very much.

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Marc Filippino
The first group of German Leopard 2 tanks has arrived in Ukraine. The delivery is a symbolic and a practical boost for Kyiv, which is battling to push back Russian forces. These Leopard tanks aren’t the first western tanks to reach Ukraine, but they are significant because it took months of negotiations and lots of international pressure for Germany to agree to send them. Yesterday, Germany’s defence minister told Ukrainians: “You can rely on us.” And Ukrainian officials said the Leopards would be a significant upgrade to the Soviet-era vehicles they’ve been relying on.

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In the US, shares in First Citizens Bank shot up more than 50 per cent yesterday. The massive jump followed the announcement that First Citizens would buy the failed Silicon Valley Bank. That’s the bank failure that sparked global banking turmoil. To find out more, I’m joined by the FT’s US banking correspondent, Stephen Gandel. Hey, Stephen.

Stephen Gandel
Hi, thanks for having me with you.

Marc Filippino
So, Stephen, First Citizens Bank investors, it seems like they really like the idea of acquiring Silicon Valley Bank. I mean, like I said, the share price shot up more than 50 per cent yesterday. Why do they like it?

Stephen Gandel
Well, they don’t really like the deal they’re getting. They love the deal they’re getting. If they were to just get Silicon Valley without any help, I’m not sure. But the government put in a lot of extras to make this deal happen.

Marc Filippino
Like what?

Stephen Gandel
Well, one thing is that Silicon Valley had a pretty good loan book, and yet the government’s giving First Citizens a 20 per cent discount to buy those loans. The government’s also giving First Citizens about $35bn in cash. Oh, and also the FDIC is giving them loss sharing, meaning like at some point for every dollar they lose in this transaction, if something gets messed up, the FDIC is gonna cover half of that cost. As much as you could feel like, while these are giveaways, the government wants to give a pretty good deal to this bank. What’s the point of driving a hard bargain, saddling a good bank with another bad bank, and then you have a bigger bank failure?

Marc Filippino
So First Citizens Bank is getting all this good stuff, as you just mentioned. But what about the bad stuff? Is there any?

Stephen Gandel
What concerned depositors which sparked the run on Silicon Valley Bank, it wasn’t necessarily bad loans or toxic assets, which is what we saw in the financial crisis. What this was was kind of poor balance sheet management. They didn’t have a lot of cash on hand to cover deposits, depositors that wanted their money back. They also put a lot of money into treasuries and mortgage bonds, not things you think are usually risky, but they did so at a time when rates were really high. And in the last year, they those rates have come down. And so that cost the bank a lot. So what the FDIC did is they took those bonds that had traded down in price but are still likely to pay off of the bank’s balance sheet, replaced it with cash. So the FDIC is sitting on these bonds that are not bad assets. But to anyone who needs the money right now, it will cause losses. Now, the good thing is the FDIC doesn’t need that money. And so it might never have to suffer those losses.

Marc Filippino
So it wasn’t just First Citizens Bank shares that went up yesterday. A lot of bank shares went up. Is this a sign that people are starting to calm down a bit, that the banking troubles are easing?

Stephen Gandel
Yes. And also it signifies that the government is gonna do a fair amount to support these deals. You know, on top of the deal that as we said shareholders of First Citizens really liked, there was also talk that the FDIC and the government in general might give some help to some other banks even before they fail. So there’s just a general sense that the financial fireman, the regulators that put out these fires, they’re on the case. They’re looking to spread as much water around to put out the fires that are, were burning pretty hot a week or two ago.

Marc Filippino
Stephen Gandel is the FT’s US banking correspondent. Thanks, Stephen.

Stephen Gandel
Thank you.

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Marc Filippino
Saudi Arabia’s state oil company has been inking deals to supply China with more crude. Saudi Aramco yesterday agreed to buy 10 per cent of Rongsheng Petrochemical. As part of the deal, the Saudis will supply nearly half a million barrels a day of crude to a Chinese refinery. And the day before that, Saudi Aramco announced a joint venture with two other Chinese companies. They’ll build a refinery and petrochemicals complex in China. Both these deals would increase Saudi oil supplies to China and it’s coming as China’s buying more discounted crude oil from Russia.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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