Analysis / What a Missed Opportunity

Finance Ministry and Bank of Israel officials have had a bellyful of the investment funds Cerberus and Gabriel. Right from the start the two funds, which are in fact one, were blatantly arrogant and contemptuous in their dealings with the state and its officials.

It began with an attempt by the duo to present the two funds as entirely separate entities, thereby circumventing the restriction on investment funds holding more than 50 percent of the controlling shares in Bank Leumi. It continued with the addition of seven more partners to the controlling consortium instead of one, in an obvious ploy to maintain de facto control - which of course further delayed the Bank of Israel's review of the shareholders. It may be assumed that the group's consultants in Israel contributed to Cerberus-Gabriel's self-assurance, the feeling that it had all the time in the world, and that if need be, the State of Israel would accommodate the funds and extend the term of their option.

All of the parties involved say that Cerberus-Gabriel behaved as though it had the State of Israel in its pocket, and that most of the blame for its failure to complete the approval process for acquiring a controlling stake in Leumi lies squarely on its own shoulders. The sin of arrogance was its downfall.

But having said all this, one cannot but ask how the state allowed itself to miss out on an investor like Cerberus-Gabriel, and whether Israeli officials really went out of their way to ensure that the funds would gain control of Bank Leumi - at almost any cost.

The Cerberus-Gabriel group is not the first foreign investor that has shown an interest in Israeli banking. It was preceded by the Safra family, which controlled the First International Bank of Israel for many years, and the Arison and Bronfman families, who currently control Bank Hapoalim and Israel Discount Bank. All of these investors made important contributions to decentralizing the Israeli economy, and to some extent, also to establishing new managerial norms. But in the final analysis, all foreign investors to date have to a large degree remained passive. They left the management of the banks in the hands of Israeli managers, who were motivated by Israeli considerations, and who never broke through the barriers of Israeli banking and into the global market.

The Cerberus-Gabriel duo is the first investor to take an interest in Israeli banking that showed promise of conducting things differently. It was a foreign investor of an entirely different ilk, in terms of size, financial power and management methods. This is a foreign investor that buys huge companies all over the world and consistently changes their face. In the international arena, it has already acquired banks in Japan and Austria, and both of these banks underwent a revolution after entering Cerberus-Gabriel's hands.

Bank Leumi, too, would presumably have undergone enormous changes had the funds been allowed to acquire it. The bank's involvement in the funds' international business and the introduction of global management norms to Israel's second-largest bank were realistic and promising scenarios, which would have benefited the entire Israeli banking sector - and certainly when the alternative to Cerberus-Gabriel is once again acquisition by Dankner, Tshuva, Ofer, Eliyahu, Leviev or some other Israeli mogul. These moguls' management potential is all too familiar.

Granted, the State of Israel does not have to bend over backward or bend its laws for any investor, however attractive or important he may be. But the state certainly should have made a supreme effort over the past year and a half to help Cerberus-Gabriel and ensure its successful completion of the approval process. The state certainly could have made a supreme effort to make an exception to the rule that it itself set - that the terms of government tenders are not to be changed retroactively - and extended the term of the option. Admittedly, this would not have been a minor step. But when a historical opportunity to expose Israeli banking to a new world presents itself, it should not be missed.