Analysis

Will Bank Hapoalim’s Outsider CEO Undertake the Shake-up It So Badly Needs?

Named to the job this week, Dov Kotler could cap a career stained by the collapse of Prisma by making long-overdo changes at Israel’s biggest bank

Bank Hapoalim CEO Dov Kotler.
Gadi Dagon

Since he stepped down as CEO of Isracard, Israel’s biggest credit card issuer, at the start of 2015, Dov Kotler has lived a quiet life out of the eye of the media. He devoted his time to iintoo, a peer-to-peer property investment company operating in the United States and Israel.

Kotler also worked as a consultant to the American investment fund Warburg Pincus when it bought Isracard rival Leumi Card, and served the same role for potential buyers of Isracard. He also joined the board of Bezeq, Israel’s biggest telecoms company.

Two weeks ago he received a phone call from Oded Eran, the chairman of Bank Hapoalim, asking him if he would be interested in the CEO’s job. Sources close to the hiring process say Irit Izakson, the chairwoman of First International Bank of Israel and Kotler’s boss early in his career, had suggested him for the position.

Kotler has told associates that the salary wasn’t the reason he accepted the offer this week.

The government has capped pay for CEOs at financial institutions at about $700,000 a year. Kotler earned big at a series of jobs before the pay ceiling was imposed, including as CEO of CAL-Israel Credit Cards, Union Bank of Israel and the failed Prisma investment house. His shares in iintoo are worth millions.

Rather, it appears that what interested him was fame, an appeal to his ego, the opportunity to wind up his career at the pinnacle of Israeli banking. Hapoalim is Israel’s biggest lender by most measures, although its market capitalization has fallen behind that of Bank Leumi.

Hapoalim wasn’t the only bank interested in Kotler – Israel Discount Bank and Leumi have also been on the hunt for new CEOs. Over the last few weeks, Discount Chairman Shaul Kobrinsky had sought without success to get Kotler to apply for the CEO job, which eventually went to Uri Levin (who was reportedly offered the Hapoalim job).

Kotler was in Iceland last week when he got the phone call from Eran and the Hapoalim search committee to come in for the final round of interviews last Thursday evening. On Monday, the bank announced his appointment. All that stands between him and one of the most powerful jobs in the Israeli economy is an OK from the Bank of Israel.

If Kotler isn’t the perfect choice for the job, he is certainly a reasonable one. As an outsider, he promises to bring fresh air to Hapoalim, which has had a succession of leaders who rose from the ranks and designated their successors.

Erez Yosef, who is head of strategy, resources and operation and is close to Hapoalim’s current CEO, Arik Pinto, had been the leading candidate for CEO. In the end, he never even made it to the final stage of the selection process. He is now expected to leave the bank.

Sources at Hapoalim say Kotler’s appointment was a disappointment to Pinto, who had hoped someone from inside would get the job. As a result, Pinto may leave the bank earlier than expected and before he has reached a settlement with U.S. authorities are allegations the bank helped Americans evade taxes.

Others in the upper reaches of management are less than excited about Kotler’s arrival. He is likely to shake things up at the top and may well decide that Yael Dromi’s job as head of stakeholder relations is unnecessary. Others could be eliminated, too.

Among Kotler’s personal goals will certainly be to rescue his reputation from the low point of his career, Prisma. Kotler had been put at the head of the newly formed investment house in 2006, with a budget to make acquisitions and turn into a financial services giant. Two years later, Prisma collapsed at a loss of hundreds of millions for its backers.

But he should also have some forward-looking goals, namely to use his extensive experience in banking, finance and credit cards to usher Hapoalim into a new era of high-tech banking. Along the way he will want to close the market cap gap with Leumi.

He doesn’t have a hard act to follow. His predecessors in the job over the past 20 years failed. He now has a chance to change Hapoalim’s DNA, the corporate culture that has not only left it as a laggard versus Leumi but allowed it to become enmeshed in affairs like the tax evasion probe.

Kotler can help achieve that by making the bank more transparent rather than waiting for lawsuits that force it to open up its files to explain, for instance, why it lends billions of shekels to tycoons like Nochi Danker and Eliezer Fishman a decade or more ago without collateral.

The U.S. tax probe presents another opportunity. Leumi, who faced the same allegations, settled more than four years ago, paying a $400 million penalty and allowing management to move on to developing its business.

Hapoalim, meanwhile, dragged its feet and insisted it would not be liable for a fine of the same order as Leumi’s. Instead, it has booked provisions and legal costs so far of $611 million and allowed it to act as a needless distraction for management.

Those are only some of the challenges Kotler faces, against which he will face no shortage of opposition inside and outside the bank. Success will enable him to close the circle.