Analysis

Fishman Deal: Billions Disappear and No One’s Asking Why

Banks Supervisor Hedva Ber has refused to investigate how the banks failed to collect on tycoon Eliezer Fishman’s massive debt

Eliezer Fishman in a Tel Aviv courtroom, March 23, 2017.
Ofer Vaknin

Hedva Ber, the Bank of Israel’s banks supervisor since 2015, knows everything there is to know about Israel's banking system and capital markets. And how do I know that? I’ve perused her résumé and read the articles she has written over the last 20 years.

For example, a 2005 article that Ber wrote with Konstantin Kosenko revealed that equity analysts covering Bank Hapoalim had a conflict of interest. They recommended that the public buy shares held by the investment houses they work for, helping to support the shares in their employers' portfolio. The title of the article made no bones about it: “Analysts Recommend Shares of Related Companies: Does The Market See the Potential for Conflicts of Interest?”

In a paper that Ber wrote with Sigal Ribon about the opening up of the Israeli capital market in the '90s, the authors reveal that Israeli companies that “have close links with local banks concentrate their borrowing with a limited number of banks or are in continuous contact with them” and get cheaper loans than those that maintain relationships with a wider circle of financial institutions. That’s also interesting.

Another example comes from 1996, when Ber and others exposed the nasty practice of banks in the '90s underwriting share offerings in lousy companies that had connections to banks. They found that the companies’ profit performance immediately after their initial public offerings was more often than not poor, and their overhead costs rose.

“The fact that after an IPO profitability fell and operating costs that benefited executives grew testifies to the fact that there is very limited supervision by the bourse over behavior of firms and their managers,” was one finding.

Ber didn’t learn the ins and outs of the capital markets in the ivory tower of academia but via a career in bank supervision. In 2008 she moved over to Bank Leumi — from regulator to regulated — as head of its capital markets division. After 2010 she was in charge of Leumi’s risk management. That put her on the vice presidential level and let her see firsthand the relationship between Israel’s banks and tycoons, and the way they won preferred loan terms from Leumi and other lenders.

So it’s impossible not to wonder what her response has been to the case of fallen tycoon Eliezer Fishman’s massive debt and insolvency. Fishman was asked time and again to repay his debt and never did. During the Fishman proceedings the court asked Ber, now as banks supervisor, to look into the debt, and Knesset members, watchdog groups and the media have done the same, but she has refused to follow suit.

This week, in response to the release of the terms of the debt accord that Fishman reached with court-appointed manager Joseph Benkel, Ber had this to say: “The creditor banks were not involved in formulating this debt plan. The banks supervisor also was not involved. The supervisor does expect the banks' boards and management teams to examine the plan with a broad outlook arising from the issue that includes maximizing [repayment] and the public’s trust in the banks.”

This is an odd reaction. First of all, it’s incorrect — the banks were involved in crafting the plan. They're going to have to approve it, so there’s no reason to leave them out of the negotiations.

What interests the banks is closing the Fishman case as quickly as possible without there being any investigation into what happened. Why? It’s pretty obvious: Any investigation would expose negligence by top managers now and in the past that would damage careers and maybe even lead to lawsuits.

After all, what good is opening a Pandora’s Box of 4 billion shekels ($1.1 billion) in debt, half of which has gone up in smoke? Benkel has said that Fishman weighed bankruptcy for 16 years and has been insolvent for 10 of them.

It’s easy to understand why Fishman prefers a debt pact over bankruptcy. That’s standard practice for tycoons. But banks are the custodians of the public’s money, and it was public pressure that forced them Monday to express opposition to the debt accord’s terms. But make no mistake about it, the banks want an agreement.

It’s harder to understand Ber’s attitude. She’s the public’s representative and the banking industry’s policewoman, yet she would prefer to leave the Fishman affair alone.

We can only guess why. Maybe she’s thinking about the day she leaves the Bank of Israel and the possibility of a CEO job at one of the big banks. Maybe she fears that she and her employees will come out looking bad from an investigation.

Maybe she shares the view, like many at the top of the financial world, that everything was done according to the book, so there’s no need to investigate even if the results were disastrous. Maybe she’s just too deep into the banking world to be too critical.

Ber wasn’t personally responsible for the Fishman affair, whose origins go back 20 years, but if she doesn’t act she's betraying the public.