At first glance, Bank Hapoalim’s announcement regarding Eliezer Fishman last week seemed to make sense. The bank said it was joining a motion by the Tax Authority to foreclose on the real estate baron’s assets because he owes it a lot of money.
- Hapoalim seeks receiver for tycoon Fishman
- Israel Tax Authority seeks to force Eliezer Fishman into bankruptcy
- Israeli tycoon Eliezer Fishman loses $51.5-million tax appeal
At second glance, though, Bank Hapoalim’s announcement to the court is nothing short of mind-boggling, even outrageous, and it begs hard questions about the bank’s relationship with Israel’s tycoons in general, and with Fishman in particular.
According to the bank’s announcement, Fishman owes it 1.8 billion shekels, which is nearly half a billion dollars. But Fishman’s assets or securities will cover only a fraction of that amount, the bank said, a fact that is not denied by the debtor. Hapoalim holds Fishman’s personal guarantees.
“The bank is almost certainly Fishman’s biggest creditor, perhaps bigger than all the rest together” it stated. “The debt was created in large part by Fishman’s demand that it exercise the personal guarantees it had to secure debts of various companies in the Fishman group that were not repaid on schedule.”
The nave reader might think Hapoalim’s story of Fishman’s debts is associated with the biggest asset bearing his name – Jerusalem Economy Corporation – which lost heavily on Russian real estate. But the nave reader would be wrong. The bank that lent money to JE and to Industrial Buildings isn’t Hapoalim but another one entirely, Bank Leumi. Fishman’s 1.8 billion debt to Bank Hapoalim stems from other business activities.
Which, exactly? Insofar as is known, Hapoalim holds pledges to shares of the Yedioth Ahronoth news group that Fishman bought about 20 years ago, shares in Ten gasoline and retail company and Home Center DIY chain, attachments to private property and to other assets. That is an assessment, because Bank Hapoalim delivered its list of collateral in a closed envelope, citing banking confidentiality.
But the significance of Hapoalim’s announcement runs much deeper. If the debt was not caused by a sudden problem at a real estate company, or due to some crisis abroad, how was it created? What happened at Yedioth? Or at the retail chains? The truth is, nothing sudden did happen. The companies just didn’t pay enough dividends to Fishman, whose debts mounted to a gargantuan 1.8 billion shekels.
But how could that happen? How could Hapoalim, the biggest bank in Israel, allow Fishman to run his businesses for five or 10 years in a manner that led to an accrued debt of 1.8 billion shekels, without any unexpected crisis or event? Doesn’t the bank have a credit officer? Doesn’t it know how to say ‘enough,’ and take over management in order to stop the debt from bloating any more?
What exactly was the relationship between Fishman and Bank Hapoalim that led the bank to lend him more and more, even when it was crystal clear that most of the debt was bad?
No choice but to act
After so many years and given all the questions that were asked, including by TheMarker, it is hard to avoid the thought that this procedure could have gone on and on, and only stopped because the tax authorities set out to foreclose on Fishman’s assets, a move that left the bank no choice but to join.
But that’s just the h’ors d’oeuvres before the entrée in Bank Hapoalim’s announcement: Although Fishman was left in peace over years to accrue a debt that reached 1.8 billion shekels, although the debt was created without any causal crisis or event, and although Bank Hapoalim admits that it won’t get most of the money back – it is demanding that the same Fishman continue to run his businesses and companies.
You don’t believe it? As Bank Hapoalim advised the court, “The purpose of the motion to appoint an officer, insofar as it pertains to the period before the order of receivership, is not to foreclose on Fishman’s assets or to assume his powers as an officer at the various companies. The purpose of the motion is, to enable Fishman to continue to run his businesses, at this stage, while on the other hand, having a supervisory observer on behalf of the court who would keep the bank’s (very large) creditor interests in mind.”
Even now, the bank doesn’t want to replace Fishman at the top of his companies. It just wants not to get screwed by the other creditors and wants observers on its behalf to be appointed to oversee the receivership process – the lawyers Pini Rubin and Yaron Elhawi. Or to ensure that its lawyers ensure that Hapoalim’s handling of Fishman’s debts does not appear unusual in the eyes of the court and public.
Bank Hapoalim’s motion isn’t really surprising, though. Crony banking is a long-standing Israeli illness: there’s a club of tycoons rubbing shoulders with bankers and politicians and journalists; tycoons who can get sweetheart loans that nobody else would get, either in volume or in terms. And when their investment goes sour, the lenders don’t strain themselves getting their money back. Why should they. It’s the public’s money.
Nochi Dankner and the IDB group were an extreme example of crony banking. Dankner acted to advance the candidacy of Zion Kenan as CEO of Hapoalim (he’s just leaving the bank now.) Hapoalim had been chaired by Nochi Dankner’s cousin, Danny Dankner, who was later convicted of corruption. Somehow, Nochi Dankner and his private companies received loans amounting to hundreds of millions of shekels that were never repaid. In the hearings on IDB’s debts, Tel Aviv judge Eitan Orenstein asked Hapoalim how they could have lent the group billions of shekels without collateral.
Hapoalim isn’t alone
Bank Leumi and other banks also lent huge amounts to Dankner, to his holding companies and to his commercial companies, too. It might have looked reasonable if the banks had taken steps to regain their money from the moment problems began to emerge. But they didn’t.
Much the same story is emerging about Fishman’s mounting debts and poor management. The banks knew for years about the difficulty he faced in repaying, and that’s irrespective of the heavy losses he suffered in gambling on the Turkish lira or his property investments in Russia.
How do we know that? Because during the legal battle that Leumi waged against Fishman early this year over control of JEC, Leumi’s lawyers said Fishman misled and misleads them, promising time and again to sell assets but not doing so. He shouldn’t continue to run the companies and sit on their boards, they said, because of conflicts of interest between him and the bank.
Yet until the Tax Authority took action, neither Hapoalim nor Leumi nor any of the other banks sued to foreclose on his assets or to declare him bankrupt. Fishman owes the taxman about 200 million shekels.
What causes crony banking? It has formal explanations from the world of finance – and political economics and sociology. Maybe it results from tycoons and bankers dancing at each other’s parties, with politicians and journalists too, of course? Or maybe it’s due to their all hiring the same advisers and lawyers and accountants and public-relations agencies? Or because their kids work in each other’s organizations?
Maybe it’s because some of the tycoons own their own newspapers and the banks are wary of prodding them – Fishman’s shares in Globes, Dankner’s in Yedioth? Maybe because none of the above want the system exposed? And maybe it’s all because this story is about other people’s money? If and when the bankers and tycoons start to throw mud at each other in court, none are likely to come out clean.