Israel tries to lure major banks to expand its R&D

Haim Shani, director general of the Israeli Finance Ministry. ()

Haim Shani, director general of the Israeli Finance Ministry. ()

NEW YORK (JTA) — If Haim Shani has his way, the titans of Wall Street will start moving more of their business to Dizengoff Street.

Shani, the director general of Israel’s Finance Ministry, is in New York this week on a mission to promote Israel as a center for research and development for the financial services industry with a government program that would include tax breaks and subsidies for U.S. companies.

Israel already is a global leader in the field of high technology, the site of R&D centers for global behemoths such as Intel, IBM, Motorola, Cisco and Hewlett-Packard. All told, some 35,000 Israelis are employed in R&D.

But financial services R&D — a multibillion-dollar market that includes financial products development, data management, investment mathematics, foreign exchange software, security and more — is virtually nonexistent in Israel.

“Israel has the expertise in technology and understands the business of financial services, but there is a mismatch between talent and the demands of the local economy,” Shani told JTA this week during his visit to New York. “Israel, through its human capital, could be a center for innovation. The financial services sector has the potential to be a major employer.”

The idea is to expand Israel’s financial services sector, whose size correlates with the country’s diminutiveness, and create new jobs and wealth in an industry that now has a dearth of employment opportunities. If successful, the program could help lure to the country new immigrants or expatriate Israelis who work in financial services but cannot find jobs in the Jewish state, Finance Ministry officials say.

“We know there are people who would like to return or make aliyah,” Shani said. “It’s part of a larger strategy of bringing minds back to Israel.”

Shani came to the United States to meet with chief technology officers, chief operations officers, chief information officers and other senior executives at banks — none of whom he would identify — in a bid to sell them on the idea of creating R&D centers in Israel. He had made a similar trip to London, and says he is far along in the process with some banks.

The pitch is straightforward: Major financial institutions like Fidelity and Goldman Sachs already have R&D centers abroad. For banks considering expanding R&D operations overseas, why not come to Israel, a fully developed country where there is a large pool of talent, a stable workforce, a strong economy, cultural propinquity and time-zone proximity both to eastern markets (Hong Kong, Shanghai, Tokyo) and to the markets in London and New York?

The most salient draw is the talent element. Shani says the same ingredients that have made Israel a powerhouse in high-tech R&D apply to financial services R&D: out-of-the-box development and implementation of technology.

For example, veterans of the Israel Defense Forces intelligence corps have background in security technology that could enable them to develop security products for the financial services sector. Furthermore, with experienced professionals from the financial services industry overseas now living in Israel — native Israelis and immigrants from North America — the country has significant financial industry know-how.

“We’re not asking for favors here,” Shani said. “From a pure business perspective, there’s a proven track record of development coming out of Israel.”

As an incentive, Israel would offer certain tax breaks and subsidize some labor costs for up to five years. The Israeli government would kick in between 30 percent and 50 percent of an employee’s paycheck for that period, depending on several conditions. For example, employers located outside Israel’s densely populated central region would be eligible for larger subsidies. The government budget for the program is $10 million to $15 million.

Several major U.S. banks already have offices in Israel, but they tend to be quite small and their activities limited to seeking investment opportunities in Israel or as a locale from which American immigrants can telecommute to their old jobs in New York. Shani’s plan imagines something much different.

A veteran of the technology industry whose clients came largely from the financial services sector, Shani is new to government work. Most recently he worked for nine years as CEO of NICE Systems, a NASDAQ-listed company that provides security solutions and helps companies monitor compliance. That followed stints at IBM, Unitronics, Orbotech and Applied Materials.

But last fall, Finance Minister Yuval Steinitz called asking Shani to be the ministry’s professional head, and Shani says he felt it was time to serve his country.

“There’s a growing gap between the private sector and the government in Israel,” Shani said. “I felt my experience could potentially be used in a meaningful way within government.”

If his pitch on financial services succeeds, Shani says, the project could be the first step of a larger vision to turn Israel into a financial hub — something pursued by his predecessor at the ministry, Yarom Ariav.

While Israel is still years away from that, Shani says this project has the “potential for a quick win.”

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