Analysis |

New Chairman of Israel’s Largest Bank Must Rise Above Conflict-of-interest Rap

Bank Hapoalim's Oded Eran has a great reputation as both a lawyer and a person. He’ll have to make people forget his close ties to disgraced tycoon Nochi Dankner.

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Right to left: Incoming Bank Hapoalim Chairman Oded Eran and his predecessors: Yair Seroussi, Danny Dankner and Shlomo Nehama.
Right to left: Incoming Bank Hapoalim Chairman Oded Eran and his predecessors: Yair Seroussi, Danny Dankner and Shlomo Nehama.

For Yigal Arnon, 2002 wasn’t an easy year. Arnon, now deceased but then one of Israel’s most prestigious lawyers, had to face the exposure of his testimony regarding a major client, businessman Gad Zeevi.

Arnon’s testimony revealed that during the 13 years he was chairman of First International Bank of Israel, the bank led a consortium that granted Zeevi billions of shekels in credit. That was the same Zeevi who was a key client of Arnon’s in his other role as a private lawyer.

When Zeevi ran into trouble later it made the granting of so much credit to him look irresponsible and shed light on the problem of Arnon holding both jobs at the same time.

The announcement last week of the appointment of Oded Eran as chairman of Bank Hapoalim, Israel’s largest bank, certainly reawakened memories for anyone following the Israeli banking industry. Eran was a partner at the law firm Goldfarb Seligman, Israel’s largest law firm, for 23 years and has worked there on an of-counsel basis for the last six years.

He has served as a lawyer for a number of Israel’s most powerful businesspeople. Until recently, in the relationship between Israel’s biggest lenders and borrowers, he has largely been identified with one side: the borrowers.

Eran will replace Yair Seroussi, who was forced to resign as chairman because of a sexual harassment complaint against the bank’s former chief executive, Zion Kenan. Seroussi failed to report to regulators that affair, as well as the payment the bank made to the unnamed employee who filed the  complaint. Last month the complaint earned the bank a reprimand; Seroussi’s term was originally due to expire next September.

Seroussi is the third straight Hapoalim chairman who has left under unnatural circumstances while Shari Arison owns a controlling stake. In 2009, Seroussi replaced Danny Dankner, who was forced out by then-Bank of Israel Governor Stanley Fischer and was later sent to prison for fraud and breach of trust. Dankner had replaced Shlomo Nehama, who in 2007 was forced out by Arison after a falling-out.

Those who expected that this time Arison would appoint a chairman from the outside, someone with no connections that could cause further complications, will probably be disappointed. Goldfarb Seligman’s website says it best about Eran: Among his clients “are many of Israel’s large and most successful public companies, leading venture capital funds and large foreign investors who invest in Israel.”

Oded Eran, left, appointed Bank Hapoalim chairman in late 2016, seen here in 2010.Credit: David Bachar

“Eran is regularly recognized as being among Israel’s leading attorneys and among the most influential individuals in the Israeli business community, by a number of international guides and legal publications in Israel and abroad,” the website states.

A tale of two Dankners

Interestingly, Eran’s main business client until 2010 was the person connected to many of Hapoalim’s top appointments over the previous decade, Nochi Dankner, who just this week was sentenced to two years in prison for stock manipulation. He was one of the people behind the appointment of his first cousin, Danny Dankner, as chairman.

Danny Dankner was a key figure behind the appointment of Kenan as chief executive, and Kenan was the person who mentored and promoted the current chief executive, Arik Pinto, as his successor.

Even Seroussi was connected to Nochi Dankner. He founded an investment fund in which Dankner was one of the largest investors, and later was the chairman and part owner of a company in which one of Dankner’s companies was also a major shareholder. The fact that the new chairman used to be Dankner’s lawyer is not exactly encouraging.

Eran, 61, lives in a luxury apartment tower in Herzliya. He is married and has three children and one grandchild.

He was involved in all the biggest deals of Dankner’s IDB group for years. The relationship with Goldfarb Seligman began before Dankner took control of IDB, when the Recanati family owned the conglomerate. But during the decade of Dankner’s ownership the law firm took in over 100 million shekels ($26 million) in legal fees from IDB companies.

Eran has known Nochi Dankner from the 1990s, when Eran represented his uncle Shmuel Dankner and the publicly traded companies he owned. Even though Nochi and Shmuel were not particularly close, Nochi, who served as the family’s representative in those businesses, was impressed by Eran.

Nochi Dankner leaving the courtroom after sentencing, Dec. 5, 2016.Credit: Ofer Vaknin

So after Nochi bought IDB he continued to work with Eran for years. The connections between the law firm and IDB grew even tighter after 2005 when the law firm Dankner-Lusky, in which Nochi had been a partner, merged with Goldfarb, Levy, Eran & Co.

Again, Eran was involved in all of IDB’s biggest deals, and there were dozens of huge contracts, says a former top IDB executive. Eran was always pleasant and smart with a good sense of humor, and provided creative solutions for customers. All the executives trusted him and relied on him. He dealt with regulation and securities law, took part in negotiations and still advises IDB, even though the management has changed.

Arison also met Eran as a client. In the mid-2000s he advised Arison on various business deals, including increasing her control over Bank Hapoalim. In addition, Goldfarb Seligman provides legal services to Hapoalim and other companies in the Arison Group.

As far as is known, Eran has not signed a conflict-of-interest agreement as part of his new job. Business acquaintances have repeatedly stressed his integrity, but considering the importance of the bank he’s now chairman of, and his background in the business world, Eran may find himself in a position where he’ll have to use that integrity often.

Rich kid

Pinto, the chief executive who Eran will supervise, was one of 11 siblings. He was orphaned at a young age and grew up in a boarding school. His predecessor, Kenan, grew up in a one-room apartment in a poor neighborhood in Jaffa.

But Eran comes from a well-to-do family. He grew up in north Tel Aviv’s Tzahala neighborhood, which was very prestigious in those days, mostly for career army people. His father was the army’s chief psychologist and his wife Dafna is a psychologist. One of his best friends from childhood, Prof. Daniel Tsiddon, is a former deputy chief executive of Bank Leumi, and the two are still good friends even if they haven’t done business together, so far.

After high school he was drafted into the Nahal infantry brigade, and after the army he studied law at Tel Aviv University, where he graduated cum laude in 1981 and was an editor of the law review. He received a master’s degree in law and literature two years later, also cum laude, and moved to New York, where he worked at a law firm and specialized in U.S. securities law. He returned to Israel in 1986 to work as a lawyer.

Shari Arison, who owns a controlling stake in Bank Hapoalim. Credit: Nir Keidar

Eran was considered an authority on capital markets and securities law, and led the law firm through a number of mergers over two decades, making it one of Israel’s largest firms. Today he also lectures at Tel Aviv University’s law school on mergers and acquisitions.

In 2010, Eran left the active practice for personal reasons but continued to advise the firm until very recently. He kept an office in the firm and stayed in the loop, though last week he announced he was leaving his advisory position as well.

A legal colleague called Eran a brilliant lawyer, highly esteemed and unbelievably modest. He speaks quietly and has a calming effect. He never raises his voice or gets excited.

The annual salary cap of 2.5 million shekels for financial executives shouldn’t be a problem for Eran, who is very well off from his many years as a top lawyer. The new job is a major comeback for him and a return to the Israeli business world’s center stage; that in itself may be adequate compensation.

But Eran, who was only appointed Hapoalim’s board in February, has no real background in banking.

Last week, the Bank of Israel’s bank supervisor, Hedva Ber, sent all banks instructions limiting the terms of their chairmen to a period yet to be determined. She said she expects the boards to be filled with more bankers who have broad banking experience, something Eran lacks.

Despite this lack, Eran will very quickly face a number of serious business decisions concerning the bank’s future. He will be responsible for overseeing a chief executive who only started four months ago.

Among the issues on his plate are the cyber threats to the bank and the U.S. federal and state investigations into the bank’s alledged involvement in helping American customers evade taxes. So far Hapoalim has written down 600 million shekels for the costs of the investigation (including legal and other fees). The fine it will face in the end may be much higher.

Other issues include a U.S. investigation into suspicions that the bank handled funds in the FIFA bribery scandal in which senior officials took bribes for granting broadcasting rights. Eran’s legal skills may serve the bank well in these cases and help limit the damage.

Other issues include the bank’s strategic expansion abroad, especially granting credit to midsize U.S. companies. It is also considering buying an American bank. Another major question is what to do with the bank’s private banking business in Switzerland and South America, something yet to shine.

A major issue in Israel will be how the bank offloads its very profitable Isracard credit card subsidiary, which the law now requires it to sell within four years. Isracard, Israel’s largest credit card company, provides the bank with over a third of its fee revenues and around 300 million shekels in profits a year, about 8% of the bank’s profits.

Finally, Eran will have to preserve the delicate balance and his good relationships with Pinto, Arison, Ber and many others. The key may be his relationship with Pinto, who has vast experience in banking, particularly at Hapoalim.