The Bottom Line / Banking hell
The economic slowdown of the past six years (apart from last year) failed to make the necessary impression on our banking system. For the banks, it was business as usual: Credit was handed out generously, commissions flooded in, profits piled up and bonuses of millions were granted to senior bankers.
The economic slowdown of the past six years (apart from last year) failed to make the necessary impression on our banking system. For the banks, it was business as usual: Credit was handed out generously, commissions flooded in, profits piled up and bonuses of millions were granted to senior bankers. But even in the banking world, the day of judgment has to come: And here it is, the presentation of third-quarter losses.
The banks' problem is that many companies and businessmen and women - and not just Gad Ze'evi - find themselves in trouble. Banks hand out loans left, right and center while failing to make specific provisions. The managers convince the directors that companies are likely to see their cashflows improve and that the lenders have outstanding management material, so it really is good business sense to renew their credit lines. And this is exactly why banking supervisor Yitzhak Tal has had to step in recently to instruct the banks to collectively set aside a further NIS 850 million in provisions. It is also why Tal is about to instruct the banks to capitalize the interest rate that won't be paid back and to register it immediately as a doubtful debt which would increase provisions for doubtful debts by another NIS 150 million.
And so Tal will bring down the banks' profits by about a billion shekels, and as soon as those profits go, the managers can no longer enjoy a 2000 spending spree. They will no longer be able to pay themselves millions in bonuses, and for sure the bank staff will not get their bonus of an extra month's salary or two. They won't be able to distribute dividends to their shareholders. And this is how Tal is plumping up the safety cushion for the banks - and himself - for the troubles that may never come.
The banking system's dreadful situation and Israel's specific risk is such that there is not one foreign strategic investor willing to buy Bank Leumi. Knowing this, Finance Minister Silvan Shalom decided to privatize the bank through a sale of the government's shares on the stock exchange. As long as no single shareholder takes control, the state will maintain its control, but the moment some investor buys up a controlling stake, it would have to apply for approval from the Bank of Israel and the state will sell its holdings so that control passes to the new boss.
Now if General Electric were to want to buy control of Leumi through Migdal, then the bank would have to sell its 20 percent stake in the insurance firm. Similarly, Bank Otsar Hityashvut Hayehudim should not be allowed to gain any control whatsoever in the bank first because of the historical failure in the manipulative banking share scandal and also because the company is but a shell, with no management backbone and insufficient equity.
In better days, the state could have sold Bank Leumi Le'Israel at a good price - for example, to Edmond Safra - but the politicians preferred to keep control and practice political largesse. Today, the government is hard pressed to find one buyer, and the price is low. But in any case, it is far far better that Leumi is sold, regardless of how and to whom, just as long as it is no longer controlled by the government.