Does Hapoalim Belong to Shari Arison?

Shari Arison is the sole controlling shareholder of Bank Hapoalim. Her holding in the bank - 26%, via Arison Holdings and Salt Industries - does not amount to a majority, but only she has a controlling shareholder's permit from the Bank of Israel. A closer look at the numbers, however, reveals how small the holding is relative to Hapoalim's might, its influence on the Israeli economy and its "too big to fall" status.

First, Arison still has loans against the bank shares she owns - loans she took to buy controlling shares from the American partners and purchase Salt Industries' shares, first from the Dankner family, and later from the public, when she issued a purchase offer and turned Salt Industries into a private company.

Even if all of Arison's shares were debt free, they are only 16.9% of the bank's shareholder equity.

The Israeli banking system generally views shareholder equity as a measure of the bank's overall worth, but during an economic downturn, like now, the market caps of Israeli banks dip below their shareholder equity, and during times of economic growth, their market value is more than their shareholder equity. Shareholder equity is therefore not a measure of a bank's financial strength.

A bank's financial strength is measured by its balance sheet, and since Israeli banks are required to keep only about 10% of the public's deposits in cash, shareholder equity is "multiplied" by a factor of about 10. Since banks haves assets that do not require them to keep a liquid balance, the multiplier is actually much greater.

On December 31, 2008, Hapoalim's balance sheet totaled NIS 307 billion, 16 times the shareholder equity. Since Arison's shares in the bank are about 17% of its shareholders' equity, her "power multiplier" rose to 97.

Finally, since some of the shares have loans against them, the ratio between the bank's financial might and Arison's direct holdings in its shares is more than 100 to 1. In other words, every agora that Arison invested in the bank gave her 100 times as much financial power.

Who finances the other 99% of Arison's financial power - power she did not buy, yet controls? Mainly the public, which deposits money in the bank, providing it with a source for lending 10 times its cash on hand to individuals and companies.

The public finances another chunk of that power, via its ownership of the majority of the bank's shares - the 74% that Arison does not own - either directly or via provident funds and pension funds that invest in Hapoalim shares. A smaller portion is financed by the other banks, which lent Arison the money to buy her shares, and those banks are also financed mainly by the public.