Taking Stock / Ah Yes, We Remember It Well

Remember the massive job cuts at Bank Hapoalim that caused an uproar last year? Remember the battle between Shari Arison and Amir Perez? Remember Arison's persuasive speech about the bank needing to cut costs because of the recession? Remember how analysts applauded Hapoalim's then-CEO Eli Yones for daring to break precedent in banking and fire 10 percent of the work force? Remember how Bank Leumi rushed to institute a streamlining program of its own? Remember all that?

Then, do cast an eye over the third quarter financial statements Bank Hapoalim and Leumi published this week. After all their passionate insistence on cutting costs, their spending on salaries actually went up.

Wage costs at Bank Hapoalim rose to NIS 2.5 billion from the start of 2003, 2.7 percent more than in the same period of 2002. Why? Because of "seniority ranking", the bank says.

At Bank Leumi, wage costs rose 5.1 percent in the first nine months of 2003 against the same period of last year. It's because of costs on voluntary retirement and the impact of accounting standards, it says.

We started asking around at the banks, why pay costs are rising despite all their announcements of job cuts and streamlining designed to "adapt to the economic circumstances". They pointed us back to the explanations presented above.

One banker who heard we were asking questions shared a joke making the rounds at the banks - if we fire 10 percent of the workers this year, pay costs won't change because of the automatic pay raises. Ha ha!

Remember Dor Chemicals, the crown jewel glistening on the Dankner family portfolio? Remember how Dor suddenly began to snap up companies worldwide, in one leveraged deal after another? Remember the Dankners' predictions of the tremendous profits Dor would present in 2003, thanks to those takeovers?

Remember how the Dankners tried to sell to Ellern, a publicly traded company they control, all their private holdings, at a premium of tens of percent beyond their market valuations? Remember that it was largely Dor's predicted meteoric growth that legitimized that entire so-called Ellern deal?

Remember those excursions by analysts and journalists to Dor's plants in Germany, while the Dankners battled over finalizing the Ellern deal? Remember all that?

Do take a glance at the financial statements Dor published for the third quarter of 2003. The company, ostensibly the Dankners' cash cow, shifted to an operating loss and admitted it had misrepresented certain things in previous financial statements.

Remember the Supervisor of Banks, Yoav Lehman? You couldn't miss him, after Dick Grasso of the NYSE, he's the second most prevalent bald scalp gracing the financial pages. Remember how he spelled out ten months ago that the banks couldn't pay dividends, because of the poor quality of their credit portfolios?

Is that so? The Dankners, the ones in the previous section, are about to get NIS 50 million in dividends, their share of the massive NIS 474 million dividend Bank Hapoalim declared this week.

Two possible conclusions spring to mind. Either that $9 billion guarantee from Uncle Sam and the consequent leap in the stock market restored the banks' ability to pay dividends. Or, if you press hard enough, the supervisor has to bend.

Remember the credit crunch? Remember how bond prices collapsed? Remember how Israel's institutional investors, the ones that manage your money, scorned Israeli government shekel bonds bearing interest of 10-12 percent, and sniffed at bonds bearing real interest as high as 6.2 percent?

Well, believe it or not, now they're happily hand your money over to a whole line of businessmen, at far lower interest. Happily? They're positively delighted.

Suddenly the IPO market is boiling hot. Every week institutional investors snap up hundreds of millions of shekels worth of corporate paper. Two possible conclusions spring to mind. Either the mood on Israel's financial markets changes at warp speed and Israel's institutional investors like to sell in the dip and buy at the peak. Or yes, you guessed it, that $9 billion guarantee from Uncle Sam changed the whole picture.

Remember Finance Minister Benjamin Netanyahu's plan to cut taxes? Remember his speeches telling how the high rates of tax are destroying the nation? Remember his promise that taxes would go only one way, down, because they were like a yoke resting on the economy's neck?

Well, the bill describing his economic policy proposes to lower the ceiling on tax exemptions for severance compensation from NIS 10,090 a month to NIS 6,964 a month. In case that economic gibberish means nothing to you, take comfort in the thought that you'll get it on the day you retire, or get fired.

What the treasury proposes is a tax hike of the most pernicious kind - it retroactively raises the tax bill on money accrued over years or decades. Think of it this way. Say you earned NIS 10,000 a month over 30 years. If the bill passes into law, you lose NIS 45,000.