After a process shadowed by unexpected controversy, Stanley Fischer was named to the Bank Hapoalim board of directors on Thursday, amid expectations that the world-renowned economist aims to become its chairman and key figure.
Serving over the course of his career as vice chairman of the U.S. Federal Reserve, Bank of Israel governor and vice president of the International Monetary Fund, Fischer, 77, is regarded as one of the world’s leading economists and authorities on monetary policy.
He is the first former Bank of Israel governor to serve on the board of a commercial bank. Hapoalim is Israel’s largest bank by market capitalization, and since Shari Arison sold down her stake it no longer has a controlling shareholder.
Recently widowed, Fischer arrived in Israel last week and is now in standard quarantine.
“It’s an excellent appointment. Fischer is very smart, brings a lot of experience and global connections – a person who will offer his real opinion without fear or favor,” said Alon Glazer, vice president for research at Leader Capital Markets. “I have no doubt that Fischer can help Hapoalim in everything connected with business development and because of his long experience in regulatory matters.”
Fischer was approved for a three-year appointment in a general shareholders meeting, along with Israel Trau, a former CEO of tiny Union Bank. Ronit Abramson-Rokach and Dalia Lev were re-elected to the board as outside directors. Esawi Freij, a former Knesset member for the Meretz party, failed to win a seat.
Sources close to Fischer say he has no plans to compete for the chairman’s post and that was what he has been telling institutional investors. Hapoalim’s current chairman, Reuven Krupik, is due to stand for re-election in February 2022.
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Fischer is not part of the inside circle in the Israeli capital markets and is not indebted to anyone. However, he is close to Prime Minister Benjamin Netanyahu, who as finance minister tapped him to serve as central bank governor in 2005. Last July, Netanyahu consulted with Fischer about the coronavirus and its economic impact.
The Netanyahu connection is important, especially in the case of Hapoalim, which is subject to a lot of government oversight due to its key role in the economy.
As Bank of Israel governor in 2009, Fischer forced Hapoalim – over the objections of Shari Arison, then the bank’s controlling shareholder – to dismiss Danny Dankner as chairman after the banks’ supervisor uncovered several cases of misconduct. Danker was eventually convicted of fraud and breach of trust and served time in prison.
Two years ago Arison started to divest her Hapoalim stake. After failing to find a strategic buyer for the shares, she began selling off stock in blocs. Today her holding is just 15.8% and regulations limit her voting rights to just 5%, so the bank has no controlling shareholder. Her plan is to sell the balance of her stock in the next few years.
Fischer’s immediate challenge as a Hapoalim director is to help the bank cope with the coronavirus. As he acknowledged last week after he was named to the board, “The Israeli banking system faces many challenges, not least of them resulting from the coronavirus crisis.”
Hapoalim is highly exposed to small businesses and household borrowers, against which it has had to take a steep 1.7 billion shekel ($500 million) charge against future credit losses. The bank’s shares have fallen 28% so far this year, cutting its market capitalization to just under 27 billion shekels.
Apart from dealing with the coronavirus crisis, Hapoalim is supposed to begin undertaking cost-cutting measures and expanding into business areas, among them the United Arab Emirates. It needs to make its costly Bit payments app profitable and expand its activities in high-tech.
However, the main task facing Fischer and the other director is improving their control and supervision over the bank’s management and their decision-making processes.
Before Dov Kotler was named CEO last year, Hapoalim has suffered a series of embarrassing incidents that damaged its reputations and cost it billions of shekels. Among them were the big losses on loans given to tycoons such as Motti Zisser (who died in 2016), Eliezer Fishman, Nochi Dankner, and Nonin Mozes. The bank also spent 4.5 billion shekels settling allegations of helping its U.S. clients evade taxes. Its executives became embroiled in allegations surrounding an improper relationship between a senior executive and a subordinate. Hapoalim ran up big losses in mortgage-backed securities during the global financial crisis in 2008.
Kotler and Krupik say that all represent the bank’s past and that they are creating a new institutional DNA. But that’s not entirely correct as evidenced by the fact that tycoons, such as Yitzhak Tshuva and Mozes continue to enjoy good reactions with Hapoalim. Regarding Fishman, Hapoalim supported a debt bailout that left the family with hundreds of millions of shekels in assets.
That means Fischer and the other directors still have their work cut out for them ensuring that a real governance change is coming to the bank
Despite Fischer’s sterling resume, his appointment to the board did not go smoothly. Last August his candidacy created a storm in the committee that vets directors for banks that do not have a controlling shareholder and caused one of its members – David Avner, who is also an outside director of Hapoalim – to quit the panel. Fischer’s nomination went through and his candidacy won the support of institutional investors in the shareholders’ vote that followed.
Being a Hapoalim director is prestigious and pays well relative to the amount of work required. Board members get a fixed salary of 100,000 shekels annually plus extra money tied to the number of meetings they participate in and other factors, each meeting equal to a few-thousand shekels.
The onset of the coronavirus has increased the number of board meetings so that directors have been earning compensation in the range of about 50,000 shekels a month in recent months. However, for Fischer, whose personal wealth is estimated to be in the tens of millions of dollars, the money he will get from Hapoalim is not important.