How Much Is Gabi Ravid Worth?

1. Be a good loser: "Knowing how to win," trumpets Psagot in its expensive new campaign. If you want to win, we're told when we're little, you have to learn how to lose sometimes. Psagot's management has to learn how to lose in the short run, in order to win in the long one.

Psagot-Ofek was hit by two blows in recent weeks: the fall in the markets, and the fall of its CEO over a marketing scandal: she, her deputy and others are suspected of deliberately, and illegally, including Bank Leumi investment advisers to recommend investment in Psagot funds, even when that was not the best avenue for the investors they were advising.

The company had demonstrated supreme and unwavering confidence in stocks, ceaselessly marketing its mantra about long-term investment in shares and convincing investors to diversify their investments world-wide. It grew tremendously in recent years. In 2006 alone, as investment abroad became all the rage in Israeli market circles, the company raised billions from the public - and became the only one to withstand the merciless attacks or the brokers. In other words, the public didn't withdraw its money.

Its chief executive Gabriella Ravid, her deputy Danny Zilbiger, and mutual funds manager Ro'i Vermos led it wisely, creatively, innovatively, and Psagot-Ofek strode past the giants like Bank Hapoalim, and became Israel's biggest mutual fund management company. Its reputation had long surpassed theirs.

But markets rise and then they fall, and the company began to lose height. A few days before its sale by Leumi to York Capital Management, it turned out that Psagot had also lost some market share to rivals.

The retreat is painful to Psagot's clients. The ISA's ruling that Ravid and Zilbiger had to go before it agreed to let York buy the company is excruciating to the company.

The faces are grim at Psagot's offices in the Africa Tower on Ehad Ha'Am Street, Tel Aviv. Everybody had hoped things would end otherwise. "They don't deserve to end their careers in the capital market this way," one complained.

Yet it is clear that when the market rallies and the public returns to mutuals, Psagot will rally from the loss of its CEO. The culture that Gabriella Ravid instilled over the years at Psagot, and the managers she recruited, will assure that Psagot remains at the top. But the remaining managers feel the weight of the responsibility they bear: justifying the NIS 1.35 billion price that York is paying Leumi for the company.

 Gabi Ravid and Moshe Terry

2. Price wars: Apropos of price, the bombshell that Israel Securities Authority chairman Mosh Terry dropped on Psagot-Ofek (fire your CEO and her deputy) could lead to a cynical war over the value of Ms Ravid. York agreed to pay a fantastical price for Psagot: it may exploit the situation to lower it. In the coming days, we will learn how important York feels that Ravid really is to Psagot. We will find out whether York feels that Psagot without her is not the same.

Meanwhile, Bank Leumi will try to prove that Psagot is a strong company worth ever penny of that NIS 1.35 billion even without Gabi Ravid.

But Leumi has a problem. For one thing it's signed on a contract enabling York to pull out specifically if Ravid is not involved. Secondly, since the deal was done, prices throughout the mutual fund industry have dropped. Also, the retreat in the markets has shrunk Psagot's assets.

Will York pull out? Probably not, but it will be interesting to see how fast it bends Leumi CEO Galia Maor, who managed to evade an indictment in the whole affair that brought Psagot low.

Leumi will also try to extend the period of time that the Israel Securities Authority is prepared to let Ravid stay on.

3. Fighting the good fight that doesn't matter any more: Is the Israel Securities Authority justified in denying an investment management license to Psagot as long as Ravid and Zilbiger are there?

Certainly. That is what the Israel Securities Authority does, grant (or not grant) licenses to investment management bodies. Should it however have waited for the outcome of the legal process against Ravid and Zilbiger, against whom charges have not been filed at this stage? Quite possibly.

Why did Terry have to barge into the seam between York and Bank Leumi, in a deal this complex and significant to the capital market? why did he have to cast such a dark shadow on the deal?  He could ruled that if charges were filed against Ravid and Zilbiger, then they should leave. Why rush to judgment?

In any case, the whole affair of the advice at the Bank Leumi branches is very old-capital market. Now that Terry and his colleagues have changed the capital market from top to toe, and for the better, biased investment advice can't help the banks any more anyway.

The distribution fees that the banks receive from the mutual funds do create distortions, but they don't help one company at the expense of another. It is not that malfeasance should go entirely unpunished, it's just odd that for years and years, the banks raised billions upon billions for their mutual funds and evaded punishment. And now that the whole thing is over, now Terry is firing the heavy guns.

And against whom? Against the company that handled its customers with the utmost devotion, even if some of them reached it through unkosher means.

Terry should turn his attention to structured deposits that the banks are marketing to the public as though they were fresh hot buns.

4. Dicing Hamburger. What hasn't been said about the "goodwill transaction", as opposed to the stock swap. When the Bachar reform forced the banks to sell their provident and mutual funds, the sides counted on a section in the contracts regarding goodwill, to reduce their tax payments toward zero.

The goodwill section enables the buyer (of a company's assets, not shares) to deduct the purchase price throughout ten years. In that situation, a large part of the investment is actually paid for by the state, through the avoidance of tax. This gambit was first exercised when Amit Berger bought the PKN mutual fund management company from Bank Hapoalim. Since them, the entire market has adopted it; even Warren Buffett's acquisition of Iscar employed the method.

Only Yair Hamburger, who controls Harel and who bought the Pia mutual fund management company from Bank Leumi, signed onto a stock deal. He took a lot of flak for being the first to grab funds from the banks but getting the tax planning all wrong.

But maybe he hadn't: The Israel Securities Authority has ruined the goodwill game. If York hadn't bought Psagot through a goodwill mechanism, if the parties had exchanged shares and swallowed the tax bill, it wouldn't have had to ask the Israel Securities Authority for a permit to run a mutual fund management company. York would have bought Psagot together with its license (that was how Pia changed hands). Because York is only buying the assets, it has to set up a new company that needs a license, and that's where the Israel Securities Authority stopped it in its tracks: Set up the company by all means, sans Gabriella Ravid. At least Hamburger saved himself the potential trouble of having to fire the Pia CEO.