The decision by Arison, Israel's wealthiest woman, marks the end of her family's 21 years of control over Israel’s largest bank. The period was marred by occasional scandals, including the 2013 conviction of former chairman Danny Dankner on charges including fraud and corporate breach of trust.
Arison also recently sold off her holdings in the Housing & Construction Holding Company (Shikun & Binui) real estate firm to businessman Nati Saidoff.
Several months ago, she tried to sell off half of her interests in Hapoalim to a group of investors from North America. When that didn’t pan out, Arison sought permission from the Bank of Israel to sell off some or all of her 20% holdings in the bank, via the Tel Aviv Stock Exchange.
Hapoalim trades at a market cap of 36.2 billion shekels ($9.98 billion), such that the value of Arison’s stake is valued at 7.2 billion shekels.
After the sale, Bank Hapoalim will no longer be controlled by any individual or corporation but will be entirely publicly held, bank chairman Oded Eran and CEO Arik Pinto told employees Tuesday.
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The move, they added, should not have any impact on the bank’s operations.
Israel's central bank gave Arison Holdings Ltd. a year to decide when to start selling off its shares in Hapoalim. It has four years to sell off the majority of its holdings, after which it must retain no more than 5% of the shares, unless it receives special permission from the Bank of Israel, according to regulatory policy. Arison's company can request a two-year extension if need be.
So as not to impede the sale of Hapoalim's shares, Arison’s representatives on the bank’s board of directors – Efrat Peled, Ido Stern and Meir Wietchner – are expected to tender their resignation.
On Tuesday, Arison Holdings received an alternative permit that allows it to sell off its controlling interest in the bank to one or more investors.
A reluctant tycoon
During her decades at the helm of the bank, Arison never came off as someone who sought power or wanted to play the role of tycoon. Rather, she seemed to have little interest in banking and wielding power. It thus comes as no surprise that there were people under her at Hapoalim who took advantage of this.
One prominent example is Danny Dankner, during his tenure as bank chair between 2007 and 2009, when he was essentially under the thumb of his cousin Nochi Dankner, then controlling shareholder of IDB, Israel’s largest holding company. The two of them, along with a handful of advisers and associates, caused Arison no shortage of headaches.
Arison found herself at odds with the Bank of Israel, which wanted Danny Dankner out, and she repeatedly faced embarrassing scandals – including massive losses due to investments in U.S. mortgage-backed bonds; Dankner’s dealings with the Turkish bank Positif, which led to a criminal conviction; and several sex scandals involving senior executives.
Arison’s troubles began when she bought out her partners: the Dankner family and American investors. That left her as the sole controlling stakeholder, without any balance from the board, and without any particular interest in banking. The central bank saw her as an owner with deep pockets, but she was incapable of managing a bank.
The result was that Hapoalim's main shareholder offered no "added value" to its operations, and after a number of people took advantage of that predicament, there were those who saw Arison as a destructive force. She understood several years ago that she wasn’t getting much from her Hapoalim holding, and public criticism of her activities was causing her distress. She then set out to find partners, and reached the stage of advanced negotiations with American and Canadian investors.
Those efforts fell through, however, and meanwhile Israel began developing a new model for bank ownership – one that does away with single controlling stakeholders. The model was implemented first at Bank Leumi, the country's second-largest bank, when the state sold off most of its shares in it, and then at Bank Discount, when the Bronfman-Sharan group sold its interests on the Tel Aviv Stock Exchange. Then-Bank of Israel Governor Stanley Fischer was in favor of the new policy, believing that it was best to terminate the long-standing policy of the owner of a bank being one person with deep pockets.
Realizing the new model offered her best chance of getting out of Hapoalim, Arison held talks about implementing it over the past several months with Hedva Ber, supervisor of banks at the Bank of Israel. Arison won’t be getting a check for a cool 7.3 billion shekels for her holding in the mail; rather she’ll be forced to sell her shares gradually over several years. However, she will give up control of Hapoalim must faster: after her three representatives resign from the board; when her stakes subsequently drop to under 20%; and finally, once she holds less than 5%, when she’ll lose her right to vote at shareholder meetings.
A new era
Once Arison sells off her Hapoalim stake, a full 75% of Israeli banking operations will be held publicly through the stock exchange, without any particular individual controlling them. Israel’s three biggest banks will have no such dominant party.
The new model has its advantages and disadvantages, but the jury is still out about it in Israel, where hasn’t been enough of a track record in the realm of banking. However, it’s common around the world to see major businesses without a main controlling interest.
Both Bank Discount and Bank Leumi have instituted various efficiency measures since they began operating without controlling stakeholders, which bodes well for the new trend.
One thing is clear, in any case: This model greatly increases the Bank of Israel’s responsibility for overseeing the management of local banks, including the salaries their executives earn – a positive development assuming the central bank maintains its independence and power. While that may seem trivial, there are reasons to fear that it may not always be run by responsible people. Just take a look at the way the government has treated other gatekeepers during recent years, including the Antitrust Authority and the Public Utility Authority for Electricity.