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Try not to ask attorney Liza Haimovitch, senior adviser to Israel Securities Authority chairman Moshe Tery, about the underwriting regulations. At least, not unless you have a lot of time.

Haimovitch and Tery have been taking fire from the Justice Ministry, the insurance companies and the media over the proposed regulations. Mainly, they stand accused of folding before the pressure of the banks.

Haimovitch feels that if anything, the opposite is the case, and she has a particularly sour view of her attackers; the Justice Ministry, yes, but mainly Clal Insurance (TASE: CLIS) .

She has been at the Israel Securities Authority for 14 years. Haimovitch worked under the legendary ISA chairman Arie Mientkavich (who later chaired Israel Discount Bank (TASE: DSCT), and then under his successor, Miri Katz. During the last five years she has worked under Tery, as his personal assistant.  From the perspective of her time on the job and the range of subjects she has handled, Haimovitch is unarguably the most experienced regulator in Israel's financial markets.

No other regulator knows the ins and outs of the market as she does; no other regulator could afford to lash it as mercilessly. And after 14 years, in her farewell interview, that is what Haimovitch does.

What do you feel is the most serious problem in Israel's capital market?

Haimovitch: "The institutional investors and credit. The institutionals don't know how to carry out due diligence before lending " - (meaning, thoroughly investigating a company's situation before buying it, or investing in it). "All these private placements of non-tradable corporate bonds are done based on rating agencies' analyses.

"Even when it comes to bonds listed for trade, questions arise about the quality of collateral backing the bonds. It is far from clear what checks the institutional investors carried out."

Aren't you overstating the case? Institutionals take pride in their very small incidence of defaults.

"The fact that they haven't encountered defaults yet is not impressive. It certainly isn't because of the quality of their checks. When institutional investors extend a loan or buy bonds, they don't carry out so much as a bit of a check. A bank wouldn't dream of lending money without an in-depth examination, while the institutional investors do it all the time.

"The same is true of maintaining credit. They rely on the rating agencies. The banks meanwhile also handle routine maintenance of loans and constantly keep abreast of the borrower's situation. If a default occurs, I'd like to see how the institutional investors manage."

There have been creditor assemblies regarding corporate bonds.

"True, and their (the institutionals') behavior at these assemblies was really frivolous. So far there have been just two people among the institutional investors who took creditor assemblies seriously: there was a clerk at Gmulot, and there's Micky Civier, the CEO of Leumi Pia. All the  rest just follow their lead.

"The fact is - where is their impact on creditor assemblies and class actions? Where were they when (Eliezer) Fishman gambled on the Turkish lira? It turns out that the institutional investors prefer to take the pain, as long as they don't have to become involved in lawsuits."

So do you oppose the development of institutional investors lending money to corporate Israel in the stead of the banks? Wasn't the main goal of the Bachar reform precisely to create institutional competition to the banks, in lending?

"I support allowing provident funds and pension funds to get into credit, and compete with the banks. But to do that, they have to set up designated departments.

"It is not for nothing that the institutional market is holding the banks hostage, forcing them to get into major transactions together. The institutionals do that to make sure they will benefit from the banks' loan maintenance.

"We saw that clearly in the case of the Trans-Israel Highway. The banks sold the Trans-Israel loans to the institutionals, but not all the loans. That is because the institutionals didn't want to see the banks dissociated entirely from the loans."

Have you no respect whatsoever for this activity among the institutional investors?

"I have no respect whatsoever for the institutional investors when it comes to lending. But it's wrong to generalize. There are some people who are right-minded, like Micky Civier."

That same Micky Civier whom the ISA is about to accuse of transgressing the Funds law? Do you think the ISA's investigation has wronged a righteous man?

"I am distinguishing between the incident under investigation, and the ability of the person. Professionally, Micky Civier is undoubtedly one of the best, most talented people in the marketplace."

So, given that these institutional investors are managing our pension money, should we be worried?

"I hope that in time, young, dynamic and assertive people will come into the institutional investors and make changes. There is no question that the culture in the swamp is changing."

The swamp?

"You know, the culture we had when institutional investors, underwriters that accompany companies that are selling shares to the public on the stock exchange, and the credit departments were all part of the same bank, and you had no idea how they all worked together. That doesn't happen any more, because the banks sold their institutional units, and to more than a single buyer. Therefore, the swamp dispersed.

"What happened is that the problem passed to no small degree to the insurance companies. The main problem is Clal Insurance (TASE: CLIS) , which is rife with conflicts of interest. Everything that was bad at the two big banks has passed into Clal Insurance. They have insurance, a strong underwriting company, and also own part of a concern that owns dozens of companies engaged in every sector.

"The result is that the most important underwriter - the leader of the strongest underwriting consortium - has linked up with one of the biggest institutional investors."