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Israel Discount Bank released late Monday night a short press announcement regarding the signing of a new wage agreement with its clerks union. According to the deal, Discount granted clerks an average pay rise of 3.5 percent for 2001-2002, as well as an additional 0.5 percent as an advance on wage hikes to be granted this year.

The bank's decision to grant workers at this time a 4 percent raise at a cost of NIS 80 million arouses fears that Discount management has given up on any attempt to make its bloated personnel pay system more efficient. The trauma of the slew of industrial work disputes that hit the bank until two years ago has prevented management from standing up to its workers, instead giving in to their every demand without a fight.

Discount is the only bank that has registered three consecutive years of losses. Disregarding its subsidiaries' financial performances, the bank accumulated losses of NIS 1.65 billion during that period. As a result, the bank's equity has been whittled away by NIS 600 million to only NIS 5.2 billion. The bank's capital adequacy ratio - a measure of a bank's capital as a percentage of its risk-weighted credit exposure - has been eroded to 9.35 percent, the lowest among the five big banks; the other four have an average of 9.9 percent.

All the above has destroyed Discount's ability to increase its credit to the public and to finance the necessary investments that would help bring about significant efficiency plans. Therefore, last year the bank turned to the Finance Ministry and asked permission from the state, as a major shareholder of the bank, to sell off its most profitable asset, Israel Discount Bank of New York. The sale would improve its financial ratios and raise sorely-needed funds to extricate it from a crisis.

Fortunately, Discount has yet to receive this longed-for approval, since the money from the sale would only have whetted the appetite of the bank's workers and managers for even higher wage rises. Transfer of such sales monies should be conditional on implementing a recovery program that would stop the workers and managers from partying at the expense of the bank's shareholders - the Israeli public.

The bank's decision to grant pay increases comes at a time when wide swathes of the private sector have tightened their belts and even the public sector faces a wage-cutting proposal. It is true that a raise buys welcome peace in industrial relations at the bank, and may even allow the management to make achievements in work relations, but at present, one could have expected some restraint, particularly for a bank that has taken the hardest knocks in the past few years. At the end of the 1990s, Discount suffered from shaky industrial relations and has had its fill of difficult battles. The past two years have passed relatively calmly, but apparently this has been bought at a heavy price, sending long months of the bank's efforts to increase savings and improve efficiency down the drain.

Although Israel Discount Bank finished the last two quarters with symbolic profits, the bank is still in a state of loss. However, apparently, the bank's managers and staff have become tipsy over the scale of its improved performance. One could compare their behavior to someone who receives a NIS 1,000 bonus and rushes straight out to order a new car.