Nochi Dankner's Vast IDB Empire, Reduced to Sand

Nochi Dankner built a rich empire using the 'Israeli method' of personal friendships and money borrowed from public funds. For a while it worked, until it turned into a colossal wreck.

It's probably safe to assume Nochi Dankner is not a big fan of 19th-century English poetry. The disgraced major shareholder and chairman of IDB Group, suspected of securities fraud, was always more a fan of rabbis and of amulets blessed by them. Still, the head of Israel's largest diversified business conglomerate, controlling assets worth roughly $30 billion, could learn a lot from Percy Bysshe Shelley's poem "Ozymandias," famously telling the tale of a king so mighty he built himself a vast and rich empire, only to see it decline and reduced to "that colossal wreck, boundless and bare."

For years, Dankner – who is being investigated for stock manipulation meant to save his falling empire – has been the Ozymandias of Israel's economy. He was the strongest man in Israel's business world, running a conglomerate that owned the biggest cell phone company, the biggest supermarket chain, the biggest cement maker, the biggest insurance company, and an airline to boot. He raised tens of billions of shekels from institutional investors, pouring them into huge real estate projects. He employed former politicians and regulators to curry favor with the state and tried to control the business press through the implied threat that any paper unsympathetic to him would be subject to an advertising ban. Then, like all great kings, he grew arrogant, careless, and his hubris eventually led to his downfall.

Nochi Dankner was born in 1954 in Tel Aviv to Zehava and Yitzhak Dankner. His father was one of six brothers that founded Dankner Investments, once one of the largest investment companies in Israel, owning among other things a prosperous salt factory, Salt Industries. In 1984, after his military service and law studies at Tel Aviv University, Nochi founded his own law firm, servicing mainly the six households of the Dankner family, and in 1995 he set up Ganden Tourism with his father. The first thing the company did was found the airline Israir.

In 1997 he carried out, with his cousin Danny Dankner (also recently indicted on fraud-related charges), the purchase of a large chunk of Bank Hapoalim, Israel's largest bank. The Dankner family, with Ted Arison, bought 11% of Hapoalim for $358 million through a complex deal that was subject to a criminal investigation.  Already, the young Nochi had developed a fondness for deals that were financed with money not his own: The investment in Bank Hapoalim was fully financed by a loan Dankner took from Bank Leumi, offering land from the family's successful salt business as collateral, rezoning the land as residential so its value would shoot up, even though no homes were ever built there. Dankner was named vice chairman of the bank and chairman of its credit committee, and did not rest on his laurels. Instead, he used this opportunity to study the Israeli capital market and its leading consortium, IDB.

Wiz kid of Israeli finance

But not all members of the Dankner family backed the controversial investment and in 1999 they decided to split the family business. Nochi's share, along with those of his sister and father, was bought out by his uncle Shmuel. He used the money he got from the deal – $70 million – to start Ganden Investments, investing mainly in real estate, media and technology, while the other family members struggled to keep up with the loan he took from Bank Leumi. Finally, in 2004, they sold the controlling share of the family company to Delek Real Estate, ironically belonging to another flagging Israeli tycoon: Yitzhak Tshuva.

In 2003, Dankner made the deal of a lifetime, one that crowned him the wiz kid of Israeli finance and the golden boy of Israeli capitalism. Five years after selling his stocks in his family's company, Nochi, through Ganden, took control of IDB Group, the biggest conglomerate in Israel. After working on the deal for a year, he managed to purchase IDB despute lacking the actual finances to do so. The incredible deal secured him $250 million in funding, part of which was lent to him by the former owners of IDB. At the time, Dankner was called a genius for orchestrating a series of complex loan agreements that gave him control over a company that owned Klal Insurance, Shufersal, Koor Industries, pesticide maker Makhteshim Agan and many others.

However IDB, then owned by the Recanati and Carasso families, contributed 8 percent to Israel's GDP and was way out of Dankner's league. He also brought in partners to make up for the money he didn’t have: the Livnat family and Mivtachim, a huge pension fund run by the Histadrut. Mivtachim, supposedly a conservative investor, lent Dankner $54 million at high interest, allowing him to repay the loan within two years without a fine. The fund was then chaired by Shmuel Avital, who pushed for the deal and was named chairman of IDB-owned gas importer Maxima five years later. Through the deal, and with the help of his friend economist Dan Tahori, Dankner had IDB buy Ganden, of which he owned 47 percent. Ganden was losing money, and the deal was controversial – but it still went through.

Dankner worked fast and furiously. He made huge deals: buying supermarket chain Clubmarket and combining it with Shufersal to create a retail giant, purchasing a controlling interest in Cellcom and developing IDB into a huge pyramid-structured company. The pyramid consisted of two main kinds of holdings: powerful monopolies like Cellcom, Nesher and Shufersal and more competitive companies like Makhteshim Agan and Elron, most of which did not fare too well and suffered losses. His control was so vast that the Israeli public was basically a minority holder in all his companies, either directly or through mutual funds and pension funds. He was hailed by many for his business savvy, but Dankner's method consisted basically of financial stunts, accumulating personal contacts and huge debt. He relied heavily on his ties in government and the capital market, especially when he had to bend some regulations, and take out loans upon loans upon loans, fully using the leverage boom of the pre-crisis years.

Perfecting the 'Israeli method' of business

The truth is despite all the power and influence he accumulated, Dankner was not more than a minority holder in most of the companies he invested in (for instance, he only owns 19 percent of Cellcom, along with his father and sister), compensating for his lack of actual money with a strategy that combined a wise choice of partners who invested in him and leveraging his IDB businesses on a scale never before seen in Israel.  

His close relationship with his cousin Danny, who resigned in 2009 from his post as chairman of Hapoalim following allegations of bribery and fraud, helped him a great deal. IDB was and is one the biggest borrowers in Israel, and it helps to have a bank on your side. At the height the global financial crisis, Hapoalim was losing money on investments the bank made abroad, but still managed to allow Koor Industries to delay a repayment of a NIS 1.1 billion debt. This postponement allowed IDB to invest in Swiss banking giant Credit Suisse, buying shares for a total of NIS 7 billion and accumulating a share of 3.2 percent. For a while, the high volatility of the bank's stock allowed him to gain a decent profit, but then the European debt crisis escalated and Dankner again suffered losses on the deal.

But Dankner's success manifested itself differently: he cultivated relationships with former and incumbent regulators, invested heavily in philanthropy and strengthened his religious beliefs to the degree that he fostered close relationships (some say too close) with prominent rabbis such as Rabbi Pinto and Yaakov Ifergan, even going so far as to consult with these religious figures on business matters and often taking their investment advice. He quickly became the symbol of the Israel "method" that relied heavily on personal friendships and money borrowed from public pension and mutual funds. For a while, it worked: at its height IDB was worth NIS 6 billion. Now, it's worth closer to NIS 600 million, its corporate bond yield having risen to 230 percent.

Even before the Credit Suisse deal, Dankner made one of his worst decisions yet, partnering with Tshuva's Elad Group to buy $1.2 billion worth of land in Las Vegas, then housing the New Frontier hotel and casino, with plans to set up a gargantuan $7 billion project called Plaza Las Vegas. In November 2007, Dankner and Tshuva demolished the New Frontier in a festive ceremony, but the project never took off.

Unfortunately for them, Dankner and Tshuva decided to invest in the U.S. real estate market just as it was about to crash, and by the end of 2011 it was abundantly clear the project was doomed and that all the money invested in it – much of it public money – was lost. Together with his investment in Credit Suisse, the Las Vegas project was Dankner's attempt to prove he can play with the big boys of global finance, and it failed spectacularly.

All the news that's fit to print

That was the beginning of the end for Dankner, whose entire system started crumbling. Cellphone industry reforms initiated by outgoing Communications Minister Moshe Kahlon slashed Cellcom's profitability, and the committee to increase competitiveness in the market, initiated by Prime Minister Benjamin Netanyahu to solve the problem of wealth concentration, brought with it a fundamental change in attitude and regulation to the Israeli capital market.

In addition, Nochi Dankner suffered heavy losses on his investments in Las Vegas Plaza and Credit Suisse, his deal to purchase Ganden Tourism through IDB bore on the group and Shufersal was suffering from a sharp decline in sales following the enormous nationwide protests of 2011. Dankner, vilified last year as the main antagonist of the Israeli social-justice protest movement, was a pharaoh in a world that was suddenly conquered by Romans.

To combat all the bad press, Dankner decided in 2011 he needed a newspaper and bought Maariv, once upon the biggest paper in Israel, which had fallen on hard times. Dankner invested NIS 120 million of mostly institutional funds through his holding company, Discount Investment Corporation, in Maariv, bringing in big-name editors and journalists, trying to revive its dying brand. Ultimately, Maariv's purchase was one of the worst deals imaginable: it had no way of being profitable, and its benefits in terms of public image were shaky at best. Very quickly it became a burden. Maariv was a black hole sucking in tens of millions of shekels each quarter without any chance of reward. So in October Dankner sold Maariv to publisher Shlomo Ben-Zvi for NIS 85 million, in an attempt to cut some of his losses. Ironically, the newspaper he bought to restore his image only tarnished it further, after Dankner considered closing the newspaper, thus becoming the subject of bitter protests by the organization's employees.

But by then it really didn’t matter. On the second quarter of 2012 IDB reported a loss of NIS 1.3 billion, the last in a series of heavy quarterly losses. IDB's value dropped, its bond yields soared to over 230%, its shares nosedived and the company's accountants added growing concerns about its ability to continue as an ongoing entity to its quarterly reports. Dankner was exposed as the over-leveraged speculator he was. Panicking, Dankner brought Argentinian businessman Eduardo Elsztain to inject $25 million in Ganden, but the move failed to appease IDB's investors. From that point, it was a quick tumble and a long way to fall.

Still, a lot of people were absolutely stunned to learn this week that Dankner has been questioned following suspicions of securities fraud. According to investigators, Dankner is suspected of having directed and funded broker Adi Sheleg and Itay Strum, owner of the Swiss-Israeli brokerage firm ISP Financial, to manipulate IDB's share price to increase the company's market cap before a share offering in February.

"I'm fine," Dankner told reporters in his first response to the allegations. "Don’t believe everything you read in the press".

But even if the recent allegations fail to substantiate, the one thing that is certain is that Dankner's position as the emperor of Israeli business is over. His empire will likely be divided – after he already sold parts of it in the past year, including his prized private jet. Just like the great pharaohs, he is buried within an enormous pyramid he constructed for himself. His ascent had been meteoric, and his descent was meteoric as well. Like king Ozymandias, he now looks at a vast empire that has been reduced to sand, crying out in angst: "My name is Nochi Dankner, king of kings: look on my works, ye Mighty, and despair!”

David Bachar