Taking Stock / Be Nice

An old adage counsels that you should be nice to people on your way up, because you'll probably meet them again on the way down.

Israel's business scene could well adopt a variation on that theme: Be nice to people as they tumble screaming into the abyss. One morning they'll be back on top, stronger than ever.

1. Shlomo Eliahu: Nobody so much as twitched when we reported Tuesday that he's preparing to buy the controlling interest in Bank Leumi. He's often said he wants to do just that, and he's already the biggest private shareholder, with a 10 percent stake.

What's less known is that just two years ago, he was more likely to turn into a bank's headache than a bank's owner.

He bought his Leumi shares by taking out giant loans, though if you ask whether he borrowed money to buy the stock, he'll deny all.

But Shlomo, how did you buy the shares, you might ask. To which he'll say, he has a "mix."

Uh? What's a mix?

His holding company has a mix of assets, such as shares in the Israel Phoenix Assurance Company, the Eliahu insurance company and the Leumi shares, and against these assets, it also has heavy loans. But the loans weren't taken to buy the Leumi shares, they were taken to finance the mix.

In English: Eliahu was leveraged up to his snowy eyebrows and when Leumi stock collapsed and the bank stopped handing out dividends, bankers started shifting uneasily in their seats. One of them told us a few days ago, "There was a moment when, if I had puffed in his face, Shlomo Eliahu would have blown away."

But don't let that anecdote confuse you, dear reader, and certainly don't repeat it to Shlomo Eliahu. That metaphoric fatal puff is in the past, Leumi stock has almost tripled in value from its trough, the bank is paying dividends again, Eliahu's balance sheet is strong as steel and he's got a seat on Bank Leumi's board of directors. You'd better smile at him nicely now.

2. The financiers: Eliahu's case is an extreme example of a comeback orchestrated by the capital market. The Tel Aviv Stock Exchange is strewn with company owners and shareholders who were quaking in their boots two years ago, and now they're standing tall.

Don't get too itchy about the dynamic duo, Eitan Eldar and Roi Gil. Their business collapsed and they stiffed bondholders and banks alike, yet they're returning to the capital market for more money.

They aren't a rarity, or at least they won't be. There are plenty of guys in the current stock market scene who were anathema two years ago, who investors wouldn't touch with a barge-pole - managers whose companies collapsed, owners who bled their companies dry. Today they're waltzing onto the trading floor and sweeping up tens of millions of your money, via institutional investors. That is because investors come in two types: Those with short memories, and those with no memory at all.

3. Options: They had become a scorned remainder of the bubble era. "Prate not of stock options," new hires would roar, "I want a base salary, a bonus and a Mazda." Indeed, the Nasdaq and high-tech crash left burnt people strewn far and wide, and stock options morphed overnight from darling to dog. They become a metaphor for cheapness: Options instead of fair pay.

No longer. The stock market surge inflated the value of stock options held by Israeli high-tech workers to five or ten billion dollars, and that doesn't include the exercise price of taxable stock options. Nor does it include stock options in startups that haven't gone public or been sold yet.

So smile nicely at Shlomo Eliahu, the financiers who fell two or three years ago, and anybody offering you a nice package of shares. They're all on top again.