The yellowing Jewish Colonial Trust stock certificate passed down to Y.S. from his great-grandfather is for him a source of pride. His great-grandfather acquired it in 1899, seven years before immigrating to Ottoman Palestine and becoming one of the original settlers in Tel Aviv. But Y.S., who as a civil servant doesn’t want to be identified by name, is less proud of the fact that the company continues to exist despite having long fulfilled its purpose of financing the building of the future State of Israel.
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With no activities other than holding a 5% stake in Bank Leumi stock valued today at around 1 billion shekels ($285 million), JCT has no less than 14 members on its board - more than companies boasting vast operations such as The Israel Corporation. The directors, some of whom are political functionaries serving on behalf of the World Zionist Organization, which effectively controls the company, each receive around 10,000 shekels a month for their work on the board.
This, claims Y.S., is what drove him to join the non-profit group Tehuda, which has petitioned the Tel Aviv District Court for permission to pursue a class-action suit demanding that JCT be dissolved. “Zionism has achieved its goal of establishing the State of Israel,” he says. “There is much more that needs to be done to strengthen the state itself, but this company simply doesn’t serve any purpose. It’s outrageous to see these people sitting on a pile of money while there are so many needy people out there.”
Founded by Moshe Karif, Tehuda alleges in its petition to the court that the JCT leadership uses the company for its own private benefit, drawing exorbitant salaries and placing close associates on its board.
The WZO holds 17% of JCT as well as a “golden share” that gives it control of the general shareholders’ meeting. The Company for Location and Restitution of Holocaust Victims’ Assets owns another 25%.
The first Zionist bank
Theodor Herzl came up with the idea of such a company after he failed to raise funds from wealthy Jewish philanthropists for his vision of creating a Jewish state. The Second Zionist Congress in Basel in 1898 formally established JCT as a bank for promoting the Zionist enterprise, opening a branch in London, the Anglo-Palestine Bank, that evolved into Bank Leumi in Israel during the 1950s.
JCT controlled Leumi until 1983, when the country’s major banks were bailed out by the government and nationalized after their shares crashed in the wake of systematic market manipulation by management. Left with just a 5% stake, the WZO leadership still dreams of the day it can regain control, or at least become part of the controlling group of shareholders.
TheMarker asked several JCT directors recently why the company should continue in existence.
It’s like being told your car is completely useless since it sits parked all day, explained Meir Shavit, a former supervisor of insurance and capital markets at the Finance Ministry. “But you, as the owner, want to keep the car for your own reasons. To my understanding, the WZO has property rights just like anyone else. Why not? Just because it was established by Herzl?”
JCT has accumulated between 200 million to 250 million shekels from dividends, according to director Matityahu Drobles, a former Knesset member from the Likud who also headed the Jewish Agency’s settlement department for many years. “Whoever brought this suit are lawyers in search of money,” he says. “They aren’t saints.”
JCT’s aim is to acquire Zionist enterprises in Israel, says Drobles, but its Leumi shares shouldn’t be relinquished. “One day we’ll want to join the bank’s controlling core,” he says. “We want to turn the bank into a national bank like Herzl dreamed.”
But Herzl’s vision was realized. There is a Jewish state.
“Right, but there’s also the Jewish Agency which is active. Why does it exist? The money could go right to the government. But the connection between Israel and the Diaspora must be maintained. Look, nobody’s making money from this. It’s closed and being managed,” said Drobles.
JCT’s administrative overhead last year amounted to 3 million shekels, with nearly half going to paying its directors. At the end of this month three new directors are due to be appointed while two retire, raising the number of directors to 15.
Reuven Gerstel, the company’s CEO, claims JCT’s activities have grown significantly in recent years, but the financial statements indicate investments amounting to just tens of millions of shekels, aside from the billion shekels of Leumi shares.
“The company defined itself as wanting to engage in real Zionist investments towards continuing Israel’s development,” says Gerstel. “We’ve committed to investing 50 million shekels in infrastructure and green energy through funds. Aside from this, we’ve invested in solar energy projects in kibbutzim and continue to consider investments in this field.”
Chairman Amir Peled thinks the attacks on the company are unjustified. He says the questions about JCT apply to all the Zionist institutions that predated the state. “Does the Jewish National Fund (Keren Kayemet LeYisrael) have the right to exist? Does the Jewish Agency have the right to exist? These are questions that need to be put to the entire Israeli society,” he says.
Yaniv Pagot, chief strategist at Ayalon Group, isn’t convinced by what top JCT officials have to say. “Bottom line, there’s no rationale for this entity,” he says. “I’m familiar with the claim of investments in solar energy projects, but there are plenty of good companies doing this. What does JCT know how to do that the others don’t? Leave the solar energy field to those who know how to do it.
“Anyone buying a share in JCT today is actually receiving a discount on a Bank Leumi share,” Pagot says. “This is the reason to buy the company’s shares, not its outstanding managerial abilities in the field of solar energy.”
But the people at the WZO say there’s no need to realize JCT’s profit potential, and that the shareholder dividends that go towards funding the WZO’s ongoing activities are sufficient. This may sound surprising considering the WZO is seen as nothing but the overseeing body of the Jewish Agency, which receives donations from rich Jews throughout the world.
However, following an organizational shakeup in 2009, the two parted ways and began operating independently from each other. The Jewish Agency was put in charge of aliyah and education, while the WZO took on a range of other matters, such as encouraging Israeli émigrés to return and strengthening Jewish communities abroad, according to a WZO source.
“Until the split-up the WZO hardly did anything,” says the source. “But now it needs money.”
Behind the organizational change and the WZO’s increased activity lurks another benefit for political operators. Few people are aware that the organization is one of the few exempt by law from being required to put out tenders. Government functionaries can thereby easily channel money for their own interests through the organization – whose settlement department, it’s worth noting, is the operational arm for establishing new settlements in the West Bank.
“The company’s welcome activity in amending banking legislation, which affected the rights of the company and its shareholders, is noteworthy,” stated the WZO in response.