Two of Israel’s “big four” banks named new CEOs on Monday, with Dov Kotler slated to take the top job at Bank Hapoalim and Uri Levin the equivalent position at Israel Discount Bank.
The two appointments mean that just one Israeli bank CEO job is left open, at Bank Leumi. The search for quality candidates has been made difficult not only by the large number of openings for CEO and other top financial-service jobs in Israel, but by pay caps imposed by the government on the sector that limits annual compensation to between 2.5 million and 3.5 million shekels ($710,000 to $1 million).
Both men will move into the CEO’s office in the next few months but each faces a very different set of challenges.
Kotler, who will replace Arik Pinto who served as CEO for just three years, will be running what is Israel’s biggest bank by most measures – balance sheet, value of deposits and loans, number of retail clients and so on.
But Hapoalim has been through a difficult patch and its market capitalization on the Tel Aviv Stock Exchange is lower than No. 2 Leumi’s by about 1.2 billion shekels. Hapoalim shares fell by 0.25% to 25.58 shekels Monday, leaving it with a market cap of 36.8 billion shekels. Kotler’s appointment was announced after the market closed.
Among other things, Hapoalim is in the midst of a U.S. and New York state investigation into how it allegedly helped American clients evade taxes. Two other Israeli banks were swept up in the problem – Leumi and Mizrahi Tefahot – but Hapoalim is the only one that has yet to reach a settlement.
Hapoalim has already spent 3.2 billion shekels on provisions ahead of an eventual settlement and legal costs and the final amount will probably be hundreds of millions of shekels more.
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Pinto was forced to devote a lot of his relatively brief three-year term to handling the tax probe. Ideally he will try to reach a settlement before he steps down, but the decision on when to reach one lies mainly with the U.S. federal and state authorities, and he may not get his wish.
In addition, Hapoalim is among banks where accounts were held by officials of FIFA, world soccer’s governing body, who have been accused of money laundering and racketeering. Meanwhile, Shari Arison, Hapoalim’s biggest shareholder, is seeking to sell her 15.8% stake and pressuring the bank’s share price lower.
The tax probe has delayed Hapoalim’s plans to expand its U.S. presence, ideally by buying an American bank and merging it with its new York branch. Even after a settlement is reached, Hapoalim will likely be saddled with an official monitor of its U.S. operations and other restrictions.
Kotler also faces difficult choices regarding the bank’s credit card unit. Under Israeli government orders to divest the business, Hapoalim floated a 65.2% stake in Isracard in April at a 2.7 billion shekel valuation after failing to find a strategic buyer.
The bank must sell its remaining Isracard holding by February 2021. Ideally that would be to a strategic buyer (as Leumi succeeded in doing with its Leumi Card unit), but Kotler will likely have an even harder time than his predecessor, Pinto, had identifying one.
When the rest of Isracard is sold Kotler will then be tasked with finding a way to make up for the lost revenue from the credit card business, which has been a big money spinner for the bank.
Kotler, 63, has had a long career in Israel banking and finance. He spent 18 years at Leumi in a variety of positions before becoming CEO of CAL-Israel Credit Cards and then as CEO of tiny Union Bank of Israel.
In 2006, Kotler was offered the top job at the newly formed financial services firm Prisma with a generous salary and freedom to make acquisitions that aimed to turn it in a leading player. The effort failed badly and Kotler left after two years while Prisma collapsed.
From there, he moved on to the job of CEO at Isracard, where he remained for five years. More recently he has served as chairman of the Israel social-property-investing platform iintoo.
Levin, age 47, takes over a Discount Bank that has made a major turnaround over the leadership of its current CEO, Lilach Asher-Topilsky. Israel’s fourth-largest bank, Discount had suffered years of poor labor relations and powerful unions that limited management’s ability to address its problems and a capital crunch.
Discount today has a market cap of 17.3 billion shekels after its shares rose 1.8% to 14.91 in TASE trading.
Levin, 47, was an Israel Air Force cargo pilot and became a consultant for McKinsey & Company in London after retiring from the military. He has degrees in electronics and computer science from Tel Aviv University and an MBA from the London Business School.
He then moved to Hapoalim, where he served as personal aide to then-CEO Zion Kenan. In 2011, Levin became CEO of the investment house ISP, whose principle, Itay Strum was later convicted of helping the disgraced tycoon Nochi Dankner manipulate shares of IDB Holdings.
Levin was never implicated in the affair and even testified against his former boss, who coincidentally was released from prison Monday, as Levin’s appointment as Discount CEO was announced.
After Levin left ISP, Asher-Topilsky offered him a senior position at Discount, where among other things he helped develop the bank’s strategic targets. In 2017, Levin was appointed CEO of Discount New York operations.
They are a major profit center for Discount and, unlike the U.S. operations of other Israeli banks, were never found to have helped customers evade taxes.
Levin also faces challenges in his new role, said Alon Glazer, head of research at Leader Capital Markets, Disocunt faces increased competition from its bigger rivals Hapoalim and Leumi in business and commercial loans now that they have solved their capital problems. Discount also has a weaker loan book than the bigger banks and has had to set aside relatively more money than they do every quarter for loan losses.
“Levin will have to decide if the right strategy is to continue to aggressively grow the loan book at a rate of 10% or more a year,” said Glazer. Levin will also have to strike a balance in allowing Discount’s credit card unit to grow quickly, which could lead regulators to force the bank to divest it, as Hapoalim and Leumi had to do with their units.