Viewpoint / Lew and Scott Take a Bath

Israel's biggest bank is now worth NIS 24 billion on the Tel Aviv Stock Exchange - some 1.5 times its shareholders' equity.

Company owners don't have crystal balls. Take the story of the people who owned Bank Hapoalim (TASE: POLI). They lost hundreds of millions of shekels by selling stock in 2004 and 2005, rather than hanging on.

On Sunday, shares in Bank Hapoalim shot up another 2.5 percent. This year, they have risen 42 percent. Israel's biggest bank is now worth NIS 24 billion on the Tel Aviv Stock Exchange - some 1.5 times its shareholders' equity.

Last week, the bank surprised even the most bullish of analysts with its third-quarter results. Hapoalim has profited massively from Israel's economic upswing, the boom on the capital market, and, irony of ironies, the results of the Bachar reform that it fought so bitterly.

Lew Ranieri and Scott Shay bought controling interests in the bank back in 1997. This year, they sold off their shares in a fit of rage, claiming it was a protest move against the treasury for ramming through the Bachar reform, which forced the banks to sell their holdings in provident and mutual funds.

Looking back, their umbrage seems amusing. Ranieri said the reform was bad for the bank and its owners, and that the Bachar law changed the rules most unfairly.

Shay said the Israeli government's decision undermined the confidence of international investors in Israel. About the resolution to divorce the banks from their asset management companies, he said every other country in the world except China had rejected the idea, and called it a theoretical experiment. He also warned of the negative ramifications for the capital market.

Somebody even tossed out that Soviet Russia of the 1980s had treated businessmen better. Ranieri threatened that if Israel insisted on stealing assets from Bank Hapoalim, he would seek the help of the American government for protection: The government has to protect assets outside the United States, he railed.

U.S. President George Bush seems to have had other things on his mind than helping Ranieri and Shay, so they folded up their flags, sold their shares and skedaddled. Somehow they seemed not to notice that the ones buying the shares they were abandoning in the bank, and other this and that Tel Aviv stock and bonds, were international investors whose confidence remained unimpaired by Joseph Bachar's reform. Heavens to Murgatroyd - if anything, they seemed to think the reform was a good thing.

In general, the capital market did nothing but gain ground since the dissident duo upped anchor and shipped out. Control over Israel Discount Bank (TASE: DSCT) and Bank Leumi (TASE: LUMI) changed hands (and the buyers knew all about that Bachar reform), and the buyers were foreign investors, too. The banks have done nothing but rise all year.

An NIS 120 million loss

Shares in Bank Discount have risen 45 percent this year. Leumi was just sold at 16 percent above its market cap, and has risen 9 percent.

Lew Ranieri and Scott Shay sold 27 million shares in July 2005 for NIS 15.25 each. They got NIS 412 million. Today the stock is worth NIS 533 million. That is an NIS 120 million loss in the space of a summer.

The Arison and Dankner families had also been massively exiting their positions in Bank Hapoalim. All lost money hand over fist. Arison and the Dankners sold at NIS 12.60 per share, shedding 4.2 percent of the bank for NIS 670 million. Today, those shares are worth more than a billion shekels.