ANALYSIS / Will Israel's Economic Leaders Forge Rescue Plan or Not?

It seems that the Bank of Israel's governor, Stanley Fischer, may avert any such need.

Will Israel's economic leaders forge a rescue plan or not? Will the government intervene in the capital market, spreading a safety net under the provident and pension funds? Will it inject liquidity into the banking system, or support a floundering financial institution?

Who knows. Let's hope we don't reach such straits. Meanwhile, it seems that the Bank of Israel's governor, Stanley Fischer, may avert any such need, thanks to the rate cut yesterday and the promise to inject liquidity into the banks if needed. He also promised to step up purchases of foreign currency to shore up Israeli exports, if necessary.

But there's an alternative rescue program already in action. The insurance companies are rescuing the tycoons by providing the liquidity they so badly need, through loans or by buying their assets.

Migdal is leading the trend. This week it bought the Cellcom House in Netanya from Eliezer Fishman for NIS 356 million. Two weeks ago it bought three assets (including Migdal House) from Yitzhak Tshuva's Delek Real Estate for NIS 275 million. Delek Real Estate needs liquidity badly, being leveraged up to its neck. Tshuva is also helped by the fact that he owns the Phoenix insurance company. A few weeks ago Phoenix lent NIS 75 million to Delek Real Estate.

Eli Elezra, who also owns an insurance company and real estate firm, took advantage of the synergy to do an insider transaction, in which ILD Insurance lent NIS 30 million to Afridar.

Harel Investments and Ashtrom Properties, two veteran strategic partners, until recently shared a real estate company called Har-Esh. Last week Har-Esh itself bought out Ashtrom for NIS 66 million, making Harel the sole owner.

In all the above cases, insurance companies are providing the liquidity to cash-hungry real estate firms, under pressure from the banks. The banks have been sweating blood as share prices plunge, decimating the value of shares backing loans. They have demanded that the real estate companies, from Lev Leviev's to Shari Arison's, provide more collateral.

Yesterday's rate cut should soothe the shattered nerves not only of the bankers but of the borrowers, too.

Right now the insurance companies are the main source of long-term credit in Israel. They can roughly match the average duration of liabilities to customers (through insurance savings programs or pension schemes) and loans and investments to the real estate sector.

They say about the banks that they give you an umbrella on a sunny day and take it away as the downpour begins. Right now it's the insurance companies doing the covering; the only question is whether the companies are doing deals that will ultimately benefit their clients, too. But we won't know that until the storm ends.