Shlomo Eliahu feels hurt. He doesn't understand why the Bank of Israel is refusing to allow him to take a controlling stake in Bank Leumi. He recently said with pain, "I can't understand why the Bank of Israel doesn't like me."
He started buying Leumi shares many years ago with the intention of gaining control of the bank and deciding on its strategy. He considers this the crowning glory of his business dealings - from the boy in the transit camp to the owner of the country's largest bank, Herzl's bank.
Last week Eliahu took the bull by the horns. He declared war on the central bank and government when he publicly demanded that a special shareholder meeting be called to elect David Klein to the bank's board of directors. According to this plan to achieve control of the bank, Klein will then be chosen board chairman.
However, officials at the Bank of Israel and treasury think differently. They don't want Eliahu to control the bank. They say the Klein maneuver will not work because Eliahu currently does not have control and does not have the right to propose a director. So he will continue to wield a 9.6 percent stake in the bank without control. And this is driving Eliahu crazy.
But why is the Bank of Israel so insistent on not allowing Eliahu to gain control? After all, he is a well-known businessman; he has owned the Eliahu Insurance Company since 1963 and has held a third of the controlling core in Union Bank of Israel (Bank Igud) since 1993.
With his insurance company, Eliahu was for many years the enfant terrible of the insurance industry, in the best sense of the term. He insured motorcycles when no other company would do so, and he fought against the compulsory insurance cartel until he dismantled it and the price of this product fell. He managed his company conservatively and made good profits. If he tried to buy another insurance company today, the supervisor of insurance would give him a permit within five minutes.
At Bank Igud, however, matters were conducted differently. There he has two partners with whom he doesn't get on so well. He recently filed a suit against them for $10 million after the appointment of Haim Freilichman as the bank's CEO. During the trial, he said money was not the motive for the suit but rather the insult he had suffered from his partners who did not even bother to tell him about the appointment. Sources at the Bank of Israel say Eliahu decided in 2002 to retire from Igud's board and no longer intervene in events there, so he only had himself to blame for the situation.
Eliahu was the dominant figure in Bank Igud's controlling core of shareholders in the beginning because he was the only one who understood finance. Over the years, his partners learned about banking and developed independent positions. Eliahu was no longer the oracle; this led to struggles within the controlling core.
Eliahu's angry behavior did not go down well with the Bank of Israel. Central bank officials said a person with one third of the controlling core had to continue to take part in decisions. Their ire peaked in 2005, when Eliahu refused to increase Bank Igud's capital, making it impossible for the bank to compete for the acquisition of Bank Otsar Hahayal. The Bank of Israel wanted Igud to buy Bank Otsar Hahayal so it could expand into retail banking, but Eliahu was adamant.
Later on, when Eliahu realized that the Bank of Israel was not willing to allow him to be Bank Leumi's controlling shareholder, relations soured even further. Eliahu went so far as to publicly criticize central bank chief Stanley Fischer's policies; this certainly didn't earn him any points with the governor.
The Bank of Israel's way is not to say no but to exhaust you to death. That's how it acted as far back as 1993 when Ze'ev Abeles, the supervisor of banks, refused to give Gad Zeevi a permit to acquire control of Bank Mizrachi. Abeles never openly said as much, but he looked into Zeevi's assets in Africa until Zeevi finally gave up on the idea of the bank.
That's also how the central bank operated in the case of investment firm Cerberus, which wanted to acquire control of Bank Leumi. Then, too, the examination process went on endlessly until Cerberus caught on and dropped out.
And there is one more small point of friction - Klein himself. Klein is like a red rag to a bull for Fischer because Klein was not sparing in his criticism of Fischer's monetary policy and purchases of dollars. The last thing Fischer wants to see is Klein as chairman of Bank Leumi.
The big question is why Eliahu has not yet officially asked the Bank of Israel to be allowed to take a controlling stake in Bank Leumi. The moment he does that, the central bank will have to answer him. If the answer is slow in coming or negative, Eliahu will be able to petition the High Court of Justice, and then everything will be cleared up, including all the rumors in the market.
After all, the time has come to move out of the darkness and into the light. The time has come for the public to know why the Bank of Israel thinks Eliahu is not worthy of being the owner of Bank Leumi. Eliahu would then finally know why they don't like him at the Bank of Israel.
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