What Yuval Steinitz had to say to Nochi Dankner
Tout le monde, from economic commentators to Knesset members to Internet surfers to ethicists, raised their eyebrows when Finance Minister Yuval Steinitz decided to meet with one of Israel's leading businessmen, Nochi Dankner, at the latter's offices in Tel Aviv last week.
Steinitz's reaction to the rustling - saying he thought he was coming to a lunch, and found himself in Dankner's office - merely made the awkwardness more palpable. Not only does Steinitz evidently not understand how a finance minister should conduct himself; his explanations could have come straight from Yuval in Wonderland.
He went to a restaurant, presumably bit into a mushroom and found himself in the offices of IDB, the biggest holding company in the land.
Readers who have been following the rise of the tycoons in Israel and the weakening of elected officialdom probably feel the incident is anecdotal of the way things have developed in recent years - who goes to whom, hat in hand; and who really runs the country.
But we know what happened at that meeting between the finance minister and Nochi Dankner last week, thanks to a fly that sat unnoticed on the wall of that IDB office, which whispered the information to TheMarker.
It turns out that the whole tempest in a teacup following Yuval in Wonderland's bizarre behavior was uncalled for. It turns out that the finance minister went to Nochi's office to deliver a sharp message to Dankner and his fellow tycoons. Here is the transcript of his address, as buzzed to us by the fly.
"Hello, Mr Dankner. I understand you prepared a presentation on the IDB group and on its contribution to the Israeli economy for me. Don't waste my time, or yours. I'm not interested. All the companies in the group are publicly traded and I know IDB inside out based on the companies' financial statements and conversations with analysts and bankers. I doubt you'd have anything to add.
"I know that here in Tel Aviv there isn't much respect for academics, let alone philosophers such as myself. You confine your veneration to money and prefer to rub shoulders with accountants, lawyers and financiers. But philosopher or not, I understand what's going on here and I want to tell you something.
"The era of the tycoons controlling the economy is over, Mr. Dankner. There's a new breed of politician in town and today's regulators don't spend their days preoccupied by how to feather their nests when they leave public service. They're a new breed. They aren't obsessed with money and power: They are driven solely by a deep sense of professional commitment and the desire to make Israel a better place. They also know we are on the brink of a new era in the economy, an era in which the leading businessmen overcome their baser urges and refrain from getting revenge on regulators who refused to give them kid-glove service.
"As for IDB, I noticed that the most successful company in its portfolio is the cellular service provider Cellcom. I also noticed the company's capital structure: shareholders equity of NIS 389 million is leveraging a balance sheet of NIS 6.4 billion. In my view, a capital structure like that means only one thing: the company's creditors assume that Cellcom faces absolutely no competition, that demand for its services is rigid, and that its profitability is a function of both elements.
"So let me tell you, Mr. Dankner, that in my opinion cellular communications services are essential and therefore, the state is going to intervene in the marketplace. If we can't create true competition, buttressing innovation and improving service, we will impose price controls and we will be the ones who decide what a reasonable return on equity is. In my opinion, it's going to be very different from Cellcom's present return on equity. Prepare for that day, Mr. Dankner.
"I noticed that another flourishing member of the IDB portfolio is Super-Sol. I hear it's got good management, but I also notice that its great leap forward happened after it took over one of its arch-competitors, Clubmarket. I never did understand why the Antitrust Authority approved that merger but I intend to ensure that the antitrust commissioner makes sure the entire sector of food retail sales benefits from Super-Sol's power.
Why only one cement firm?
"It is true that the antitrust commissioner doesn't operate under my purview. But in one of my speeches I'm going to address the need for much more professional, advanced and aggressive regulation over Israel's giant corporations. Prime Minister Benjamin Netanyahu once told me, before he took office, that competition in the domestic market is key to any economy's breakthrough into the global sphere.
"I also noticed that you're a partner in a highly profitable venture with the Livnat family - the cement monopoly Nesher. I'd like you to explain to me why Israel has a monopoly over cement and how we can assure it doesn't impact the construction industry.
"I read in the papers that you didn't like it when the Livnats hired Ehud Olmert to chair their business group. I wanted to tell you that I couldn't agree more. It's very disappointing that a business group supposedly devoted to integrity and love of the land of Israel would hire a former prime minister who's suspected of criminal acts to chair it.
"While on the press, I read that IDB has reservations about the committee impaneled by the outgoing commissioner of capital markets, Yadin Antebi, to lay out rules for pension funds to invest public money in corporate bonds. With all due respect to the professional opinions of the good people at IDB, their clout when it comes to the committee's recommendations will be pretty minor. The people on the panel are all experienced pros who know the issues at stake inside and out. One doesn't ask a turkey if he likes Thanksgiving. We can't be consulting with the biggest bond issuers in Israel over the rules for pension funds to invest in their bonds.
"While on that panel, I have to admit that I don't like it that the state needs to intervene in setting rules by which pension funds and insurance companies invest in bonds issued by public companies. Netanyahu once told me that the market should be left alone to price risks and terms. But in recent years we've learned that institutional investors have various interests, not all purely substantive, when making investment decisions.
Their considerations aren't always purely confined to the quality and risk of the investments over the long run.
"Behind closed doors, investment managers - hired help - at the institutional level begged us to tie their hands, to force them to adhere to rigorous investment rules. Israel's institutional market is predictable, and is riddled with conflict of interests - not to mention that it's also run by a handful of people who scratch each other's backs, openly or otherwise. They can't withstand the pressures on them when making investment decisions, they whimpered.
"I'm also told that your investment in Clal Insurance hasn't brought you much satisfaction in recent years. I was glad to hear it, because I feel that business concerns like IDB, which are giant players and giant borrowers, shouldn't be allowed to own companies that manage financial assets for the general public. I have already instructed the new director general at the Finance Ministry, Haim Shani, to put together legislation to that effect.
"I read in the business press that your investments in Credit Suisse netted you NIS 3.5 billion, and that it's the most profitable investment ever made by any Israeli investor. So first of all, I salute you, Mr. Dankner. Second of all, it's good that you're looking at international investments. It would be best for IDB to reduce its grip over the Israeli economy, and to be quick about it, too. I wouldn't want, as finance minister, to force IDB to make moves because of the danger that its sheer clout poses to the entire economy and to Israeli democracy.
"Thirdly, if I were in your place, I'd take all that money off the table and declare that the investment in Credit Suisse was a one-off, and that with the financial crisis behind us, IDB will be focusing only on long-term investments in the productive economy. They may be less exciting and may not pay off as much in the short-term, but they will bring true value to the IDB group companies and to the economy as a whole. Investments like the ride on Credit Suisse are right for hedge funds, not major business concerns.
"My first visit to IDB, here today, will also be my last. You and your fellow tycoons will always be welcome to visit me and will be welcome at any event I attend after I step down as finance minister.
"As long as I am finance minister, though, I shall eschew any such meetings and shall focus on the job. I shall confine my meetings to the people who create jobs everywhere in the world - the small businesses. Their difficulties, their dreams, their needs are what I need to address as finance minister. The more I meet with them and the less I meet with the billionaires, or the ones who control the public's money, the sharper I will be.
"That's it. I have to run, I have a meeting with Moshe from Ramle. He's a carpenter whose business ran into trouble because of the recession last year. All that remains is for me to wish you, IDB and your shareholders and bondholders nothing but good things.
"I promise to keep track of IDB's IRR - internal rate of return - over the next decade. If you reach 15%, or 5% above the general index of shares, with minimal reliance on monopolies, your place in the pantheon of Israeli business greats is assured."
And that is what Finance Minister Yuval Steinitz had to say in his meeting with Nochi Dankner, according to the fly on the wall, who'd also expected lunch but had to settle for a presentation.
But flies can't speak, you argue? Well, given what he had to say, you're probably right: The whole thing was likely the product of the bug's fevered imagination.
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