“The basic assumption is that loans have to be repaid down the last shekel,” said Supervisor of Banks David Zaken said yesterday at the Knesset Finance Committee. That applies to all, he clarified: from households to the biggest business.
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Representatives from Israel's big banks and big borrowers were also invited to the session. Most didn't show.
Meanwhile, clearly not all loans are created equal, and a committee has been empaneled to examine debt arrangements at the banks for tycoons.
Big borrowers get better terms on loans than, say, home buyers, but who decides on the terms? What sort of sweetheart terms do the big borrowers get? For whom and how do the banks round off corners? How exactly are things finalized – is it at the department of special credit where the banks’ professionals are employed, or on the executive floor, housing good and honest bankers whose expertise is politics?
However, Zaken should not stop there. Why stop with examination of loan arrangements? Why not study the criteria whereby loans are given in the first place?
He might find that much of the credit extended to the "tycoons" is based on indulgent criteria. In the nature of things, casually given credit is more likely to stop performing.
In fact, why beat about the burning bush? If we were the supervisor of banks, we’d start the investigation with the thicket of relationships between Nochi Dankner and Bank Hapoalim (which is now being run by Zion Kenan).
A large part of the problem loans given to Dankner – nearly NIS 1 billion – is from Hapoalim, a bank where in the past Dankner himself once chaired the credit committee and his cousin, Danny Dankner, chaired the board of directors. (Hapoalim wound up firing Danny Danknerat the insistence of the Bank of Israel.)
The credit Nochi Dankner received from Bank Hapoalim is divided more or less like this: about NIS 200 million to his private company Tomahawk, which is at the top of the pyramid that holds the IDB group, and NIS 770 million to IDB Development.
There is a dispute raging about the quality of the loans to IDB Development. Representatives of IDB Development bondholders asked the court this week to declare the company insolvent.
Bank Hapoalim, which is IDB Development’s largest banking creditor, has not yet had its say in the matter.
The really problematic credit is to Tomahawk.
About this there is no dispute, because Tomahawk is insolvent. If we were the supervisor of banks, we would appoint a special examining officer only for the case of Tomahawk. We would send a diligent and reliable person there to dig into the bank’s documents, rummage in the minutes of the credit committee and leave no stone unturned with the aim of understanding why this loan was given, who exactly approved it and especially when exactly it was brought up and given and what the repayment schedule is that was set for it.
In TheMarker we have written more than once that at least a some of the credit Hapoalim extended to Tomahawk was given in recent years. The executives at Hapoalim have been mum, never responding to this. We have no alternative but to assume that this information is correct.
Now let us assume for a moment that some of the credit to Tomahawk was given in the second half of 2011.
At that time the IDB Holdings B4 bonds (the biggest outstanding series) were trading at yields ranging between 8% and 10%.
Therefore, the price of debt belonging to Ganden and Tomahawk, which hold IDB, should have reflected a higher risk. This is also the reasoning used by the credit rating companies Standard & Poor’s Maalot and Midroog.
So, if the market priced IDB Holdings debt at an average yield of 9%, then Ganden’s debt should have been priced at a yield of 11% to 12% and Tomahawk should have been priced at a level of 13% to 15%. In market argot that is a level called “junk". It reflects risk that the loan will not be repaid.
These of course are just rough estimates, for if Dankner had personal assets that could have stood as guarantees for the debt, it would have been possible to price them at lower interest.
In any case we have here, it seems, credit that was given in accordance with criteria that were not at all conservative. If we were the supervisor of banks, giving credit in this way would disturb us very much. We would try to get to the bottom of it and find out who among the top people at the bank handled it and approved it. After we had checked this hot potato, we would look into several more of Bank Hapoalim’s large and problematic borrowers, whose debts are rolled over from year to year and are not repaid according to the original repayment schedule.