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Everybody in banking circles knows it: United Mizrahi Bank has an image problem. It surfaced again when the first step taken by the bank's brand new CEO, Eli Yones, was to merge Mizrahi with its mortgages subsidiary, Tefahot.

We might have thought that its image problem lay in marrying the two brand names, Mizrahi and Tefahot, but this week, the bank revealed another image problem that has kept its board of directors intensely preoccupied in the last year. It turns out that Mizrahi's image is highly problematic in bank manager circles. Dubiety reigned regarding its capacity of rewarding executives properly, as befit their lofty status.

All Mizrahi's efforts to change that image as a skinflint came to naught, and what did the beleaguered bank not try! At first, it tried to pay former CEO Victor Medina NIS 3.5 million to NIS 4.5 million a year. It cut the check, but to no avail.

Having failed with Medina, the bank imported a new manager, Yones, and sewed him the most astonishingly generous pay package in the history of Israeli banking. His base wage is NIS 176,000 a month, but it could reach NIS 20 million, if you factor in stock options worth millions of dollars.

But lo and behold, even then, the bank failed to change its image as being a petty little penny-pincher, a bank of small people who simply didn't appreciate big managers.

How embarrassing. So the sages of the Mizrahi board sat down with billionaire Idan Ofer, tycoon Mozi Wertheim, the bank's owners, and chairman Jacob Perry, and wondered what to do. And finally, they found the answer. As a result, the management board convened on September 7, 2004, and decided to pay departing CEO Medina, a nice retirement gift of $3 million, even though the bank had already fulfilled all its contractual obligations to him and did not owe him so much as a penny.

If we pay Medina another $3 million that we don't have to, reasoned the audit committee members, the market will get the message once and for all and stop calling us mingy midgets. And so they voted yea, and shed that excruciating image once and for all.

Ofer, Wertheim know what they're doing

Okay, we've had our laugh. At this stage, you're probably sick of that skit, and wish we'd get down to brass tacks. Right?

Maybe, but the thing is, it's not a skit. The above arises from the minutes of the bank's audit committee meeting, which the Israel Securities Authority forced the bank to disclose.

This is how the panel explained its decision to pay a former CEO, owed nothing, the extraordinary sum of $3 million. "The committee members estimate that the bank and its shareholders will receive controlling interest benefit in the future by giving the gift, and from the bank being identified in the business community as one that rewards talented management amply, reflecting their contribution to the bank. As such the bank can continue competing over the services of the best managers in Israel."

Enough of this babble. Mizrahi did not owe Medina one red cent. Ofer and Wertheim had very good reasons to deposit $3 million into Medina's pockets. Trust them. They are grizzled business sharks who know very well why it pays for them to give him the money, even though he won't be working for them so much as another hour.

Rats. A new image problem surfaces

But now the Mizrahi board has a whole new image problem. Not only did they pay $3 million they didn't have to pay; they went to great effort to conceal the gift. Finally, they were forced to admit the entire chain of events preceding the decision, from the moment Wertheim and Ofer wrote a letter about it to Medina without advising the board, to the moment the bank's legal counsel Shimon Weiss said the bank should tell shareholders about it, to the moment the bank decided not to say a word anyway, and convinced its auditors that it really didn't have to.

Throughout most of Medina's tenure at the bank, its directors were at odds. Almost all the fights were leaked to the press, which diligently reported the snarling and the directors' letters defaming the CEO and so on.

Now the Mizrahi board has sunk to a new low. The directors look like a bunch of fools, happily forking over tremendous sums to former managers with no good reason. They seem to be acting as a rubber stamp for the controlling shareholders, all the while straining to hide information from the public.

On Monday, the shareholders issued an announcement to the press, complaining about a witch-hunt against Perry a few days after the bank reluctantly disclosed the whole curious affair, at the urging of the Israel Securities Authority.

They took the opportunity of scrubbing Perry's image to sling some mud at Medina, who's become persona non grata now that his chance of becoming the next Bank of Israel governor has evaporated. They also swiped at Weiss, who'll also be going home one day with a handsome present in hand. In other words, this is not just a bad board, it's a cowardly one too.