Question: The "options plan" naturally raises suspicions, since usually, the government slashes benefits and raises taxes, whereas here, it is giving something to the public. Is this a case of "election economics"?
A: Since the next scheduled election is almost four years away, this seems unlikely. Moreover, Yaron Zelekha proposed the idea in March 2003, just after the last elections, when no one was thinking about the next one. Zelekha's goal is not political gain, but to encourage consumption, and thereby growth, by giving the public the equivalent of NIS 3 billion to spend.
Q: Why is the government planning to sell the banks this way but not other government companies?
A: Because most of the public considers the banks a good investment, but views other government companies, such as El Al and Bezeq, as less attractive. However, if the plan succeeds, it could be used for other companies as well.
Q: Why the enormous 50 percent discount?
A: To ensure that the public profits from the plan rather than losing money on it. Had the discount been only 25 percent, as the Brodet Committee recommended in 1995, the chances that the share price would drop below what the public had to pay for the shares would be greater. And since the main purpose of the plan is to increase the public's disposable income, the treasury decided to play it safe by offering a 50 percent discount.
Q: How can the treasury prevent all this wealth from ending up with a handful of tycoons?
A: By the very fact that the NIS 3 billion in options will be distributed in equal shares to every adult Israeli.
Q: But 20 percent of all Israelis do not even have bank accounts. How will they get their options, and who will deal with this matter for them?
A: The government plans to select a bank or banks via a tender to open accounts for this 20 percent, so that it will have somewhere to send the options.
Q: Will the options plan definitely be implemented?
A: Nothing is certain, but the treasury has asked David Brodet to submit a comprehensive plan for immediate implementation within two months. That plan will have to provide satisfactory solutions to difficult problems such as how to distribute the options to every citizen. In addition, the plan will have to pass the Knesset.
Q: Are there any advantages to this timing?
A: Yes. The bank shares are currently trading at a discount. Leumi is trading at a value equal to 80 percent of its equity, while Discount is trading at a value equal to 70 percent of its equity. Thus if the options are issued at current prices, there is a good chance that the shares will later go up, rather than down, and produce profits for the public.
Q: What are the plan's other advantages?
A: The main one is that it will end state ownership of the banks, which began in 1983 with the $7 billion government bailout that followed the bank share collapse. Private ownership is likely to be much more efficient and to result in increased competition.
Q: Are the current managements of Leumi and Discount likely to oppose the plan?
A: Probably not, because even after the options are issued, it could be years before a controlling interest coalesces - and until then, the current managers will continue to run the banks. Only once a controlling interest forms is there a danger that they might be replaced.
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