Most people weren't too happy to hear this week that Bank Leumi plans on forgiving the massive personal debt of Israeli tycoon Nochi Dankner.
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When TheMarker published an exclusive earlier this week, outlining the plans of Bank Leumi CEO Rakefet Russak-Aminoach to absolve Dankner of the NIS 100 million to 200 million he owes, readers wailed that it simply wasn't fair.
"Why?!" they wrote. "Leumi was never willing to forgive us one lousy shekel of our debt or overdraft, and here it's forgiving that fallen operator Dankner hundreds of millions of shekels." For their benefit, here are eight reasons why Leumi is forgiving the personal debt of Dankner, of all people.
1. Russak-Aminoach is ready to forgive Dankner's debt in order to save money, and out of her fiduciary duty to her employer – the bank. The following adage might sound like a joke but is accurate quite true: "When you owe the bank money it's your problem, but when you owe the bank lots of money it's the bank's problem."
Indeed, privately-owned Ganden Holdings under Dankner's control owes Leumi about NIS 500 million, plus another NIS 85 million to Mizrahi Tefahot Bank, and hasn't got the means to repay it. In such cases, if Dankner or someone else injects money he'll usually find the bank is willing to talk to him.
The bank doesn't forgive the debts of ordinary folks because it can get the money by impounding assets and accounts. But if there's nothing to seize the bank is ready to talk, reschedule payments, and forgive. In this case Leumi hopes it can get its hands on more money through an arrangement with Dankner than by taking away his company.
Leumi also hopes Dankner will reach a debt settlement with the bondholders of the IDB Holding subsidiary. It hopes the bondholders will also forgive part of Dankner's debt to them and thereby boost the value of Ganden's assets, and shore up the collateral it holds.
2. Russak-Aminoach is ready to forgive Dankner's debt because they both belong to the same top 0.1% club, a group of several hundred people from the crony capitalistic wheeler-dealer world where everyone is tied into both politics and media, and has always and forever taken care of one another.
Russak-Aminoach's sister, for example, until recently served on the board of Koor Industries, a company controlled by Dankner. The son of former Bank Leumi CEO Galia Maor manages Dankner's gas exploration dealings. Russak-Aminoach had her career nurtured and advanced by Gad Somekh, the accountant for most of Dankner's companies – and so on and so forth.
The club takes care of its own, their sons and their daughters, by doling out jobs and tender offers, and punishes anyone who doesn't adhere to its specific code. Russak-Aminoach has no interest or incentive to break the mold because the objective of club members is simply to retain their status and to bring in their children.
3. Russak-Aminoach is ready to forgive Dankner's debt because the deal will strengthen her position. With the capital market choking major offerings and the banks holding back credit, Russak-Aminoach is one the economy's two power players, together with Bank Hapoalim CEO Zion Kenan. She decides who will live, receive credit from her or a debt restructuring, and who will die.
The message to the market upon the completion of the deal forgiving Dankner's debt will be: "Ladies and gentlemen: I'm the boss here. I can keep you alive if I wish, even if the public thinks the arrangement stinks. I'm not afraid to do it. Speak to me if you want to survive, but I can't promise that I'll get back to you quickly." This is an extremely coveted position to be in for anyone with an appetite for power and influence.
4. Russak-Aminoach is ready to forgive Dankner's debt because it's a more convenient solution than the alternative: Contending for ownership of IDB after Dankner's assets are put into receivership and clashing with its bondholders who also demand ownership of the assets. Why fight? It's just not pleasant.
5. Russak-Aminoach is ready to forgive Dankner's debt because most of the general and financial press isn't getting in her way. In some countries such a deal would generate a wave of investigations, analyses, and public criticism until it became unbearable for the CEO and board members.
But this isn't the case in Israel today. Why, for instance, aren't the TV investigative programs jumping at the opportunity? Where is Rafi "Tony Soprano" Ginat? Where is Ilana Dayan? Where is the Yedioth Ahronoth group with its means to seriously investigate?
All the media companies are going through a difficult period and all of them owe money to either Leumi or Hapoalim, if not to both, and everyone knows they'll need their credit lines in the future too. The fact that Leumi and Dankner's companies are the country's biggest advertisers isn't unrelated to the decision to choose other matters to investigate.
6. Russak-Aminoach is ready to forgive Dankner's debt because she does what she wants at the bank. There is a chairman – David Brodet – board of directors and credit committee, but Russak-Aminoach assumes they'll accept her judgment and give their blessing to any arrangement she makes with Dankner. Otherwise she wouldn't have made this deal and would have chosen to go the other way: foreclosing on the asset, taking control of IDB and putting it up for sale.
7. Russak-Aminoach is ready to forgive Dankner's debt because this is how she can recover part of the sum, reclassifying it from lost debts to profits. This is subject to her discretion. The moment she recorded all of Dankner's debt as "lost" she was able to show part of it restore. It just takes an outside injection of cash and the assumption that all rescheduled debts will be paid on time (according to the new dates). And if not? Well, if she gets to that bridge, that will be the time to cross it.
8. Russak-Aminoach is ready to forgive Dankner's debt simply because she can. She could have acted differently in the years when Dankner and his companies ran into trouble. She could have realized the collateral and demanded the shoring up of guarantees. She could have demanded that forgiving and rescheduling be conditional on the replacement of managers who had already proven they had failed. She could have looked around and checked if another investor would be willing to inject money into Ganden and gain control over it with the ability to appoint new management. She chose not to do any of this, because she can, because this is what she's always done, and because that's how she wants to continue operating in the future too.