A collapsing pyramid
Is a person who took such foolhardy risks while running the country's largest holding company is worthy, or even capable, of being the one to save it and set it on a new course?
A series of mistakes by businessman Nochi Dankner, combined with the global financial crisis, the slowing local economy and regulatory changes affecting monopolies have left the country's largest holding company in a difficult situation. IDB Holding, the firm at the top of the IDB group of companies, has posted second-quarter losses of NIS 1.27 billion, has a negative equity of NIS 1.66 billion and a "going concern" warning, indicating a high probability that it will not repay all its loans.
The primary reason for Dankner's downfall is the risky over-reliance on financial leveraging, meaning that IDB took huge loans from banks and other institutions to fund the acquisition of giant companies, with the return of the loans dependent on profits earned by those companies. This model works when the economy is growing. However, when there's a slowdown, profits drop, there's no way to repay the loans, and then the holding company goes under. The financial leveraging that enabled excessive acquisitions is also the cause of the entire pyramid's collapse.
In addition to this financial foolhardiness, Dankner is also guilty of making several other mistakes, such as buying a big block of Credit Suisse shares, purchasing expensive land for a planned hotel in Las Vegas just before American real estate prices took a dive and, more recently, buying the Maariv daily. It's tough to fill such large losses with profit from ongoing operations. Add to this the sky-high salary Dankner allotted himself and IDB's directors for years; Dankner's salary alone cost the company NIS 55 million in the past eight years.
IDB controls several key Israeli companies, including Clal Insurance, wireless communications company Cellcom, holding company Koor Industries, supermarket chain Super-Sol, real estate company Property and Building Corporation, and cement manufacturer Nesher. The profitability of these companies has eroded significantly due to the financial slowdown and regulatory changes that have introduced more competition into the Israeli market and lowered prices.
It is fitting, then, for the Knesset to accept the recommendations of the government-appointed committee on economic concentration, which are aimed at reducing the size and strength of the business groups organized as pyramids. The main question that remains is whether the person who took such foolhardy risks while running the country's largest holding company is worthy, or even capable, of being the one to save it and set it on a new course, or even of being the one capable of overseeing the breakup of the empire.