How Much Is a Headline Worth?

What would it cost Dankner, Tshuva, Leviev or Gaydamak for their press coverage?

The financial crisis shaking the world markets aroused feelings of remorse on Wall Street about two of its most prevalent practices: opening the markets to the world, leading to tremendous movements of capital, and the meteoric development of financial instruments that transfer risks between market players.

When was that statement made? Was it two weeks ago, when Merrill Lynch disclosed that it would be posting its biggest-ever loss? Maybe last week, when UBS had to buy back $19 billion worth of bonds called ARS from its clients, after years of pushing them?

Could it be that said trader spoke after Bear Stearns' thundering collapse? Or when the U.S. Federal Reserve Board and U.S. Secretary of the Treasury were discussing whether and how to bail out the gigantic mortgage banks Fannie Mae and Freddie Mac?

No, no, The Financial Times dredged up that quote from an edition of Barron's from 1987 - 21 years ago, before the era of Internet, when the number of hedge funds worldwide was in double digits but no more, before the invention of all those newfangled securities such as ARS, SIV, CDS, CDO and others. That's when it was said.

The economic and business leaders of the West will be spending the next year learning the lessons of the financial crisis of 2008, the worst since 1929. At the end of the process, international capital markets and the mechanisms supervising them will look very different. Don't think though that the huge losses suffered by investors and the banks, and the heavy price to be paid by taxpayers, will stop the development of the markets, though. They won't change human nature.

The Wall Street "financial catastrophe" of 1987 looks like a blip on the chart compared with the earthquake of 2008. After two or three years of chest-beating and massive management upheavals, after the formulation of new regulations and a steep drop in the appetite for risk - the wheel will start grinding again, propelled by hungry young managers and investors with short memories, who will state, again: "It's different this time."

We'd hazard a guess that in the second half of 2008, the results will be very different. Gaydamak, for instance, got great press as long as his businesses were private, but the moment he bought public companies he became exposed, and developments at those companies in recent months will change his image as a businessman and maybe as a philanthropist, too.

The amusing part of Ifat's report was its attempt to put a price tag on the value of exposure, for companies and people. It calculated value by evaluating how much it would have cost to gain the same exposure through running ads in the papers.

Their financial managers must have bust a gut after reading Ifat's assessment that the public relations Dankner received would have been worth NIS 2.8 million - and Tshuva's, NIS 2.7 million.

You have to multiply that by 100, or maybe 1,000 to get the real value of positive reports and spin that the tycoons manage to stick into the papers.

Non-market animals probably assume that the money these tycoons turn over belongs to the tycoons, and that they earned it through their honed business senses.

Not so. Most belongs to the readers of the business press. Out of the tens of billions of shekels in the balance sheets of the great holding companies, and the tens of billions more off their balance sheets - only a fraction belongs to them.

The tycoons borrow the money from pension funds and insurance companies, or through the banks. They may style themselves "business barons" and the like, but what they're really doing is managing other people's money.

Which brings us back to the value that headlines bring them. The tycoons' access to borrowing tens of billions of shekels from the public and the interest rates they pay (low) are affected by the situations in the capital market and of their businesses and, to a great degree, by the kind of headlines they're getting.

The target population of the headlines are analysts and managers at the banks' credit committees and institutional investors, who evaluate corporate risk. The value of the publicity that some of the tycoons managed to get, lowering their cost of borrowing, could be worth tens to hundreds of millions of shekels.

Yet public image is a slippery thing. Once the true dimensions of the financial catastrophe of 2008 becomes clear, after the holidays, we will see a new PR barrage. Come year's end, when Ifat publishes its headlines report for the second half, we'll be able to assess not only the economic value of the less flattering headlines, but the scope of the financial havoc behind them.