It’s easy to be enraged at the story of Eliezer Fishman and his big, ugly pile of debt. His business empire ran up some 4.5 billion ($1.3 billion) in debt over the years, but he long ago stopped paying anything but interest on it. And it wasn’t like he was a steady, reliable borrower: Fishman lost big in the 1982 stock market collapse, lost big again speculating in the Turkish lira, and yet again investing in Russian real estate.
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If Yossi Benkel, the administrator appointed by the court in the Fishman case, is to be believed, Fishman transferred his assets to his family over the years to keep them out of the hands of creditors if his debt was ever called in. Yet for years, the banks showed remarkable forbearance, declining to go after the assets he pledged as collateral, let alone forcing him into bankruptcy.
If the Tax Authority hadn’t finally put its foot down last August, this state of affairs might have continued indefinitely. Now the banks and Fishman other creditors face the unpleasant choice of writing off more than 90% of what he owes them in a negotiated agreement, or forcing him into bankruptcy.
How'd he do it?
How did Fishman get away with it? Why aren’t heads rolling at Bank Hapoalim and Bank Leumi, which are by far Fishman’s biggest creditors? Where were the regulators while the debt was accumulating? It wasn’t as if Fishman was the only deadbeat tycoon. Nochi Dankner, Lev Leviev, Moti Zisser and a host of others also left a trail of debt behind them. How come there’s been no investigation and why aren't the rules changed so outrages like this don’t happen?
In fact, the rules have been changed and, in any case, there are barely any tycoons left standing.
Dankner faces prison time (for share manipulation), Zisser passed away, and Leviev is fighting desperately to keep control of his Africa Israel Investments. The ones who are still around now have to contend with laws that bar non-financial companies from owning major financial companies, that is banks, and rein in lending.
In any case, as mindboggling as 4.5 billion shekels in debt seems to the rest of us, for the banking industry it’s small change.
A recent Bank of Israel report noted that of the 940 billion shekels in loans outstanding in the banking system, only 2.3% was lent to highly leveraged holding companies of the kind favored by tycoons. Only 5% of this is classified as problem loans, where there is a real or potential risk they won’t be repaid.
An ounce of hyperbole
There has been a lot of talk about how the banks have been playing irresponsibly with the public’s money, but vis a vis the tycoons the accusation are overwrought. The banks have been profitable over all these years, their financial strength is as good as ever and they have never taken a sou from the government in bailouts.
Alas, the real problem for Israeli banks isn’t the tycoons but ourselves.
The last three years has seen a boom in consumer borrowing that’s being used to pay for outrageously expensive housing, new cars, and other consumer goodies like electronics and home furnishings. The borrow-and-spend spree has been so massive that the treasury said this week it has been fueling a lot of the country’s economic growth.
Now we’re talking about real money. Excluding mortgages, Israel’s household debt has risen nearly 50% since 2011 to reach 14% of gross domestic product at the end of last year. More and more households are finding it difficult to repay their debt and the loans are getting larger and longer.
What happened is that the reforms forced banks to lend less to tycoons and big companies. So they started lending to consumers. The result is an emerging risk to the banking system and the economy that Fishman and friends never posed.
Add in the high levels of mortgage lending being used to buy homes in an overheated market, and the situation starts to look really worrying.
The Bank of Israel should investigate how the Fishman and others borrowed so much and failed to repay – if for no other reason than to clear the air – but the fact is any report it produces will be mainly for the benefit of historians. The era of high-flying tycoons is over and the bankers directly involved with lending them the money have long since retired. They can’t be fired or penalized and, in any case, it’s doubtful that any of them broke any rules.
What we should be concerned about is the household-lending boom, which will only grow as the government steps up competition in the banking sector. Unfortunately, for politicians and the media, it’s not sexy – better to go on witch-hunts against fallen tycoons than to tell voters they might have to live with the family car another a year or two rather than take out a loan for a new one.
But if we don’t, the debts of one big Fishman pale compared to the debt of lot of small-fry deadbeats, who add up to a danger on par with America’s subprime crisis.