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Last week Bank Hapoalim announced the decision by Vice Chair Danny Dankner to resign from that position, due to Supervisor of Banks Yoav Lehman's demand. The announcement is part of a long dialogue between the watchdog and Dankner, virtually since the Arison-Dankner group bought the bank in 1997.

Watching from the side, one feels it looks like Lehman won the struggle against Dankner, but a closer look at the chain of events against the supervisor's declared policy, reveals an entirely different picture.

The instruction originated with the purchase of the bank. The supervisor then determined that controlling shareholders could not receive wages from banks or be appointed chairman of the board of directors. But a year after the purchase, Shlomo Nehama (who heads the Arison family enterprises in Israel) was appointed salaried chair. Nehama doesn't have any shares in the bank but he does hold 17 percent of Arison Investments and serves as its CEO. Arison Investments is the main shareholder in Bank Hapoalim, with a 20.7 percent stake. In other words, Nehama indirectly holds a 3.4 percent stake, making him one of the largest individual investors in Hapoalim. This did not get in the way of his appointment.

Danny Dankner saw that regulatory policy was not exactly carved in stone and in 1999, was appointed to the salaried position of vice chair of the board. The supervisor was informed and approved the move, allowing an exception to the conditions under which the Arison-Dankner group was allowed to buy the bank. Since the acquisition, Nehama and Dankner have been paid upward of NIS 30 million in salary over the years.

In contrast, the supervisor did manage to have his way at the smaller banks like United Mizrahi Bank and First International Bank, where controlling shareholders were not allowed to appoint themselves to chair or collect salaries. But it looks like Bank Hapoalim is a dragon that's a little too big for the supervisor to slay, and the country's largest bank knew just how to exploit that.

Now, after heavy pressure from Lehman, Dankner has deigned to resign as vice chair but will be appointed as active chair of Poalim Capital Markets, in addition to serving as chair of several other subsidiaries like Isracard. Dankner's honor may have been slightly besmirched, but his pocket wasn't hurt. The result doesn't correspond with regulatory policy on controlling shareholders getting salaries.

The regulatory behavior in Dankner's case reveals inconsistency and difficulty in execution, apparently partly due to legal considerations. The regulator's weakness was revealed and this could be used to undermine his status on other matters. The way to prevent this damage is to anchor policy in official instructions or maybe even legislation, instead of relying on backroom deals between the watchdog and his wards. If this cannot be done, it is better to neglect a policy that cannot be enforced.