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Two weeks after Finance Minister Benjamin Netanyahu proclaimed the end of the recession, Israel's biggest companies filed their financials for the third quarter, and did not belie his words. The big banks, industrial juggernauts and the major holding companies all presented substantial improvement to their bottom-line fortunes. While one may argue with the finance minister, how can one take issue with rock-solid financial statements?

Well, one can. If you read the giants' statements closely, you find that their improved fortunes have nothing to do with any end to the recession, or any rebound in demand.

l The banks. People usually say that the banks, mainly Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI), represent the face of the economy. That is not always the case. Most of their higher profits in the third quarter and first nine months of 2003 derived from nonrecurring financial factors, primarily the surge on the stock market and mainly in the bond market, and pure bookkeeping factors such as the index gap.

Take Bank Leumi, which said profits shot up 270 percent to NIS 418 million. Most of the improvement came from its balance sheet item called "other," where the bank shifted from a loss of NIS 240 million to a gain of NIS 202 million. The notes to the financial statement explain that "other" is mainly the rising market value of securities Bank Leumi holds in its proprietary portfolio.

Much the same is true of Bank Hapoalim, where its half-billion shekel increase in finance income derives mainly from the rising market value of the negotiable bonds in its investment portfolio.

And why did government bonds leap like startled gazelles? Because America agreed to grant Israel $9 billion in loan guarantees, which reduced the Israeli government's fund-raising efforts on the domestic market, which stimulated heavy demand for bonds. Bank Hapoalim says so itself, in its executive summary: "The treasury's reduced fund-raising on the local market was enabled mainly by the Israeli government raising capital backed by the guarantees."

As for the recession, it shows up clear as day in the banks' third quarter balance sheets. Their doubtful debt provisioning remains as high as it was before. Bank Hapoalim's especially heavy provisioning led it to post another loss for its activities with corporate customers in the third quarter.

l The holding companies. From Koor Industries (NYSE: KOR) to The Israel Corporation (TASE: ILCO) and, mainly, IDB (TASE: IDBH), the big holding companies presented dramatically improved financials. People say they also represent the economy, as their holdings encompass practically the entire marketplace, with its dozens of sectors and subsectors.

Not so fast. In their case, most of the improvement resulted from the ascending values of American and Israeli stocks they hold, allowing the holding companies to revalue their portfolios, cancel charges, write up assets and cash out shares for profit, mainly in high-tech ventures.

The same is true of the insurance companies, which presented steeply higher profits for the third quarter, usually thanks to profits on the bond and stock markets. But depositors continued to redeem their policies and wipe out their savings, at a rapid pace.

l The shares. Wait, though. Just why did shares climb like that? Maybe that portends the end of the recession?

Probably not. The main reason for the upswing was the drop in Israel's risk premium after America invaded Iraq and granted Israel the guarantees, and after the Bank of Israel lowered its lending rates. And don't forget Wall Street's rally.

The rapid interest rate cuts by the Bank of Israel are also related to the American guarantees. Unless financial stability had been restored to the markets, Bank of Israel governor David Klein would have been highly unlikely to reduce monetary interest as fast as he did this year.

Do the guarantees, the interest rate drop or the Wall Street rally attest that Israel's recession is over? Most probably not.

l The big industrial concerns. Here we're talking bricks and mortar, nuts and bolts reality, not financial shenanigans or stock market acrobatics. But which industrial companies showed the greatest improvements, contributing the most to the general upswing of results on the TASE? Exporters, whose growth is almost entirely divorced from the domestic marketplace. Teva Pharmaceuticals (TASE, Nasdaq: TEVA) is an Israeli company but any parallel between the situation of Israel's economy and its results is purely coincidental. The same is true of Makhteshim Agan Industries (TASE: MAIN), Ormat Industries (TASE: ORMT) and even Agis Industries (TASE: AGIS) and Elco Holdings (TASE: ELCO), which are gradually developing into multinationals.

But the big Israeli companies operating in the domestic marketplace, like Supersol (OTC: SSLTF.PK, TASE: SAE) and Blue Square Israel (NYSE, TASE: BSI), continue to report low demand and deteriorating buying power.

Does that mean there are no signs of the recession ending? Not necessarily. First of all, the financial upswing and easing of the credit crunch could help stop the deterioration of the business sector. Secondly, the tax collection figures for November released on Monday give rise to optimism that rock-bottom has been hit.

But it is premature to call the recession history, as Netanyahu did. The improved profitability of the big corporations does not mean that the rally has arrived.