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Shlomo Nehama was in a state. "I can see the headlines already," he groaned. "In two weeks we'll be publishing our report for 2004, it will be great, and the papers will write we're laundering and plundering," he said.

Balderdash, and he should have known better. Two weeks are an eternity in Israeli time. The headlines about the money-laundering scandal at Hapoalim's Hayarkon branch had long been replaced with headlines about its sale of New York subsidiary Signature Bank and the huge salaries the bankers are raking in.

Does anybody recall the irresponsible behavior the banks demonstrated in lavishing cheap credit on unworthy companies during the bubble? Or the giant writeoffs of bad debt to big companies in the 1990s?

Somebody remembers: Hapoalim. There they are in the notes to its 2004 financial report, which show that excellent results or not, the bank's deep hole of problem debt deepened from NIS 22.6 billion the year before to NIS 23.8 billion in 2004. Of that, NIS 6 billion is classified as non-income generating, debt where the borrowers aren't even paying interest.

Shy Talmon, Hapoalim's credit manager and acting CEO, remarked two years ago, at the height of the crisis, that the real test for the banks would come when economic growth was restored. They could either draw conclusions or resume lavishing cheap credit on unworthy entities.

Not off with his head!

Talmon should have known better too: Not one banker paid with his head for his mistakes. When times are good, they take huge bonuses, and when times are bad, they lower their profiles and wait for the good times to roll again so that they can take more bonuses. It's just a matter of waiting out the storm.

Right now is a very good time for the banks, and Hapoalim especially. Its profits are sky-high and salaries are even higher. On top of the NIS 30 million the bank paid its top six people, they were also served beautifully by their "phantom" stock holdings. As its name indicates, the phantom shares skulk quietly in the small print of the financial statements, but dig deep and you'll discover that the surge in Hapoalim's share price last year brought them a cool NIS 20 million.

Times are good profit-wise, too. In 2002, the bankers shamefacedly admitted to giant provisions for doubtful debt, demonstrating what bad managers they were. In 2003, they guiltily confessed to earning money hand over fist while the economy continued to bleed, inducing populist Knesset members to slam them with anti-banking legislation.

But come 2004, they could safely boast of record profits: The economy was rallying and the parliamentarians had turned their attention elsewhere. The Bachar team devoted to reforming the banks is bogged down in the Knesset and they could party on with nobody to turn off the lava lamp.

What it really charges you for service

Hapoalim managers proudly boast that they made more from business and less from households; the household market being a sore point with them because of claims that the banks aren't competing there, necessitating drastic reform.

After delving into the financial statement, clearly this isn't the case. Profits from households did shrink, from NIS 304 million in 2003 to NIS 205 million in 2004. But the private banking units, serving the wealthier households, generated NIS 342 million, up from NIS 266 million the year before.

How exactly does Hapoalim distinguish the two classes of households? It doesn't say, so the figures should be treated with caution.

Hapoalim's profit from business increased from NIS 95 million to NIS 363 million, thanks to reduced provision for doubtful debt and wider financing spreads. But return on equity in its operations with businesses is 5 percent, versus 25 percent from households and in private banking.

Management bonuses are calculated not from absolute margins but from return on equity, and the managers know very well who butters their bread. It is not the bank's corporate customers: it's you, the private customers.

Hapoalim justly claims that the absolute figures are impressive, but its 15.1 percent return on equity is still lower than that achieved by leading American and European banks.

How could it be that Israel's big banks possess an effective monopoly over service to households, yet their profits are mediocre or worse by international standards?

Here is one possible explanation. Wages of household breadwinners have frozen or shrunk over the last three years, while at Hapoalim, wage costs have risen in two years by half a billion shekels, in annualized terms.

Yes: After 900 well-publicized layoffs, it transpires that the bank's management has been unable to gain control of wage costs. This also holds true at the other Israeli banks. Wages rise from year to year, in gay dismissal of economic realities.

The day bank managements, workers and the Histadrut labor federation secretly shake hands and ally to fight reform at the banks, and the union's leader calls for a general strike in sympathy with the poor things, you revisit Hapoalim and Leumi's financial statements. And you keep in mind where their profits come from and where they're going.