The options program for selling the banks is not new. As far back as 1986, Arie Mientkavich, then the legal counsel of the Ministry of Finance and now the chairman of Bank Discount, began to promote the idea of selling the banks through the issue of options to the public at large.
Mientkavich estimated that the government would not be able to sell the banks in the usual manner, due to political interests and over-regulation, so he proposed a unique method: distribution of the shares among the public at large. His plan was not implemented, and the ownership of Bank Leumi and Bank Discount has remained in the government's hands to this day.
In 1995, then finance minister Avraham "Beiga" Shochat also realized that it would not be possible to sell the banks in the ordinary fashion. He appointed a committee chaired by treasury director general David Brodet to investigate the matter.
The committee studied several alternatives and reached the conclusion that it would be best to adopt Mientkavich's option method, with a few corrections. Shochat adopted the recommendation and began the process of implementation. But the handling of the matter was ploddingly slow, as befits the usual rate of progress in the public sector, until the arrival of 1996 - an election year - when the entire process was put on ice.
The plan has now been taken out of the freezer, additional changes have been made to it, and the same David Brodet is examining its implementation. One of the opponents of the plan is Minister Meir Sheetrit. He prefers to issue a quick tender for the sale of Discount to a foreign investor, which would prove how serious the government is about getting rid of the banks, which would in turn encourage other investors to buy Bank Leumi, too. In Sheetrit's opinion, more important things could be down with the NIS 3 billion that would be distributed to the public as per the options plan - for instance, in the sphere of education. Similarly, he assesses that the options plan would leave the banks subject to the rule of the directors for a long time to come - and that is bad for the economy.
True, sale of the banks to a foreign investor is the best possibility of all, but what can be done when no such investors are to be found, as a result of the security and economic situation? Finance Minister Benjamin Netanyahu speaks of six potential buyers interested in acquiring Bank Discount, but there are only two serious contenders and they, too, are in doubt.
There are no candidates to purchase Bank Leumi, because in order to gain control of such a large bank, an invested of approximately $800 million is needed - an immense amount that no one wants to invest right now in the State of Israel. In other words, the real alternative is not between sale of the controlling interest and the options plan, but between remaining in the current situation without any sale and without any money, and sale of the bank to the public at large. Similarly, it is better to sell to the public at large at half price than to sell to a foreign investor - who would take all the profit for himself.
Sheetrit is correct when he estimates that with the options method, the reigning directorates will continue to rule for a long time to come, until such a time as a controlling interest can be formed through the amassing of shares in the securities market. But the second realistic alternative is to leave the current situation as is; in other words, the continued reign of the bank directors without restraint and without any foreseeable exit strategy - an exceedingly bad option.
When similar steps toward privatization with the help of options were taken during the 1990s in the countries of Eastern Europe that were moving over from communism to capitalism, the method caused the transfer of state capital to a handful of financiers, and engendered oligarchy in Russia. This could be attributed to the fact that in Russia and its neighboring countries, the government distributed nonnegotiable options to the public at large. Tens of millions of individuals did not understand the value of the options they had been given. Thus, the financiers were able to offer then token amounts - sometimes a few bottles of vodka - for the options, and were able to gain control over enormous assets for minuscule sums.
But it is reasonable to assume that this will not happen with the treasury's current plan. The options are to be distributed directly into the bank account of every citizen aged 18 and above. The value of the options will be clear, because Leumi and Discount shares are already traded on the stock exchange. Similarly, the treasury is planning an extensive publicity campaign, in which it will explain to the public the value of the option about to be distributed, and the need to learn how to deal with it on the stock exchange.
This would prevent a situation in which "Mrs. Cohen from Hadera" would immediately throw her options into the market, at low yields, while the sophisticated investor would profit at her expense.
The advantage of the plan is not its encouragement of private consumption or increased capital market activity, but rather the privatization of Leumi and Discount. Distribution of options is an irreversible step. The government will not be able to change its mind in midstream and succumb to political pressures, as happens at Bezeq and El Al. And then, within a reasonable period of time, a controlling block would form that would be approved by the Bank of Israel, and at long last, the two banks would have private owners, which would improve the management and productivity and would strongly contribute to growth and development of the economy.
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