Nineteen years ago, the first time I asked Eliezer Fishman about the danger of basing his business on heavy borrowing, he chuckled: “I’m zero risk.” He then described his superb assets and financing expertise.
A year later, in mid-1998, I exposed how Fishman had lost tons of money on currency gambles, after the yen had leaped against the dollar. A few hours later, I received a phone call – a voice eerily whispering numbers and statistics on shekel/dollar/yen positions.
I recognized the voice after a few seconds and asked, “Eliezer, why are you whispering?” He turned out to be calling from the hospital after suffering heart trouble – not that this stopped him from gambling on currency again and again.
In the early 2000s, the tone of the conversation with Fishman changed. He had become Israel’s biggest tycoon. He had bought full control of the business newspaper Globes, become a senior partner at the Yedioth Ahronoth news group, and invested heavily in the communications and retail industries. Writers at Haaretz and TheMarker began asking questions about his businesses’ heavy leverage, but Fishman would brook no criticism. He was now too big and influential to tolerate any criticism.
One day he summoned me to his Tel Aviv office to complain about our paper’s latest article on his finances. I proposed that he write to us and specify where we got the facts wrong, so we could correct them.
He looked at me and said: “You don’t understand. I didn’t say the article wasn’t accurate. I said I didn’t want you to write it.” I explained that he might have bought Globes, Yedioth and the cable TV company Hot, but he hadn’t bought Haaretz or TheMarker. That could change, he rebutted amicably: We’d go broke soon enough.
Asked why he was so sure, he embarked on a remarkably accurate description of the Haaretz Group’s bank debts. I didn’t know what the Haaretz Group’s bank debts were; it’s a private company that doesn’t have to publish financial statements. But I got the impression the man knew what he was talking about. Not much banking confidentiality there.
So let’s move on to May 2006: TheMarker revealed that Fishman had lost a stunning 2 billion shekels ($531 million) gambling on the Turkish lira. Fishman as usual declined to comment and sent his lawyers out to threaten us, but sources at banks’ dealing rooms insisted that the figures were right. We ran the story. Having little choice, Fishman had to confirm it.
Over the past 14 years, Haaretz has asked banks Hapoalim and Leumi time and again why they aren’t worried about their loans to Fishman given the group’s decline and Fishman’s penchant for forex gambling. The banks’ spokespeople simply noted: “Fishman always pays his debts.”
They were lying, of course. Fishman didn’t pay his debts, he rolled them over. How do we know? Simple: Read Bank Leumi’s motion asking a court to appoint special management for Jerusalem Economic Corporation, the jewel in the Fishman group’s crown.
“For a long time, the respondents have not met their current obligations to the bank (and apparently to other creditors too) and are not repaying debt to the bank on time,” Leumi wrote. “The respondents do not have sufficient assets to repay all their liabilities, or even to meet their liabilities to the bank.”
Why did the banks lie for so long about Fishman’s situation? Cynics might sneer that it’s because all banks lie. After all, former Bank Hapoalim Chairman Danny Dankner was revealed as corrupt, and Bank Leumi fell afoul of the U.S. tax authorities.
But that would be generalizing, and experience shows that the banks only lie crassly in rare cases, and Fishman was a rare case. As the biggest borrower in the Israeli banking system, he enjoyed special status; the banks didn’t grovel to any other client as they did to him.
Since the true magnitude of his borrowing from Hapoalim and Leumi became clear, two words keep coming up in articles on the affair: “gambler” and “failure.” But these words are being used to save the skin of the bankers, regulators, directors and others who let the Fishman affair snowball over the last decade.
He did like to gamble heavily on the currency market, but he’s not the only Israeli or businessman who gambles. His uniqueness lay solely in the banks’ willingness to lend him huge sums to play with.
Using the word “failure” in the context of Fishman and the banks is also misleading. He could leave the banks billions of shekels in the red, probably their biggest loss in 20 years on a single borrower, but Fishman is far from being Israel’s most unsuccessful businessman. There were worse.
Did the banks fail in this regard? That depends. Usually that refers to a bank failing to realize a borrower’s true risk, and when the borrower’s business goes south, the bank suffers unexpectedly heavy losses. That’s not the situation here – the banks knew Fishman’s situation perfectly well, they just didn’t tell the public.
The Bank of Israel’s banks supervisor checked Fishman’s portfolio several times but didn’t confront him. Extending credit to Fishman wasn’t a failure per se; it smacks more of deliberate deception involving a whole lot of people.
Over the past year, the bankers have been whining about Fishman’s heavy losses stemming from the Russian real estate crisis. What they’re really doing is building themselves an alibi. But it’s a highly dubious alibi because the risk involved in Russia, especially in its real estate market, should have been clear to the bankers all along.
This week, that’s turned out to be another lie. Bank Leumi told a court that Fishman owes more than 5 billion shekels, well beyond the value of the companies, while Fishman said his private assets were worth “tens of millions of shekels.” So the gap between the debt and collateral could be between 2 billion and 3 billion shekels.
Yet Fishman’s ostensibly “surprising” losses in Russia are worth less than a billion shekels. The rest were accrued over years, and the main chunk was created a decade ago via that ill-fated gamble on the Turkish lira.
After the lira loss, we asked the banks if they were worried about Fishman’s situation. They lied and said they weren’t because Fishman had valuable personal assets and had given the banks personal guarantees. Last week the banks and Fishman admitted for the first time, in official documents filed in court, that the combined value of his private assets was only a fraction of his debt; even if they foreclose on every brick, the banks are out a lot of money.
Another deception that served Fishman, the banks and the lawyers is that the gambles and big loans were done via “private” companies – a word businessmen and bankers like to hide behind when their conduct is questioned. Fishman’s approaching insolvency is the best way to understand that this whole “private” thing is all too often a fraud – Fishman’s businesses were “private” as long as he and the bankers could hide from the public what was going on there.
But when the loans and losses were exposed, it turned out that toxic billions had been passed on to the public – through the losses that the banks are suffering. The claim that Fishman gambled his own money was another lie that served him and the banks; at the end of the day, it’s the public that lost.
If he were a rich man
The story that Fishman owned private assets worth hundreds of millions of shekels, on top of his public companies, is one that Fishman and the banks cultivated over the past decade to hide his real financial condition. This deception let Fishman keep ruling his huge empire, withdraw an enormous salary from his public companies, maintain a private jet and live like a king. For the bankers, it let them put off confronting the lousy loans they’d made.
There’s another possibility that’s no less disturbing – that Fishman’s private assets are worth more than the tens of millions of shekels he says they are; that the assets were transferred to his children or foreign companies over the years, preparing for this day.
The damage to Israeli society from the Fishman affair could wind up being much greater than the 2 billion to 3 billion shekels he won’t repay the banks.
The first problem is the de facto creation of two kinds of borrowers – the ones that have to pay interest and principal on time lest the bank hound them and foreclose on their assets, and borrowers like Fishman who coast on whether to repay. The banks have yet to crimp the standard of living that Fishman and his family have gotten used to.
Remember that the banks are public companies that are protected by the state, which has for decades ignored the overconcentration of the Israeli banking sector and the egregious waste of billions of shekels through their inefficiency. These institutions can’t have two types of borrowers; the fact that they do strengthens the suspicion that the banks’ boards are violating their duty to the banks and the public. So are the watchdogs at the Bank of Israel.
Fishman’s political power and standing wound up causing great economic damage; he was one of the main voices behind the campaign over the past 20 years to bash regulation in Israel. Not a year passed without one of the newspapers, usually Maariv, running a big Fishman interview about the horrors of regulation and threatening he would “stop investing in Israel.”
That lie also collapsed this week. While the newspapers and corporate jet that Fishman bought with public money helped him sell his image as an “international tycoon,” three things have become apparent.
1. The entire Fishman model has been based on sweetheart loans from Israeli banks. No foreign bank would have given him such terms. 2. Almost all Fishman’s business remained in Israel. 3. His overseas business tended to go badly. These international failures hit his flagship company Jerusalem Economic Corporation, until at the start of 2015, as Russia’s economy began to wilt, Bank Leumi decided to foreclose.
Will the media learn the lesson from these lies and stop groveling to tycoons moaning about regulation? Will the regulators and politicians stop kowtowing to the business barons who attack any attempt by government to introduce competition and fairness?
And there’s another question far more worrying. Fishman isn’t only Israel’s biggest borrower, he’s also the biggest investor in the Israeli media. He has controlled the business paper Globes for 17 years and also owned shares in Yedioth Ahronoth, the Yedioth news website Ynet and Hot. So could his control of major media outlets be the factor that let Fishman accrue such vast debt?
Did his dependence on Israel’s two biggest banks, Hapoalim and Leumi, influence the agenda of the media outlets he controlled, and the agenda of regulators and politicians?
Was his media companies’ opposition to reforms at the banks or big business coincidental?
Did other media outlets, regulators or politicians avoid taking clear positions on key economic issues for fear of Fishman’s political clout?
These and other questions could be answered over the days, months and years to come if the watchdogs of democracy and the market economy wake up.
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