US private equity firms Cerberus Capital Management LP and Gabriel Capital Management are selling and the Israeli government needs to buy. This will be the only way that will enable the privatization of Bank Leumi (TASE: LUMI) in the midst of the global financial crisis, or even after it. It will be a kind of investment in order to realize a target that has been talked about for 20 years with tens of millions of dollars invested as the government tries, strives and each time fails. Failure after failure. This will be an investment for the public good. In these times government ownership seems the best place for a bank to be.
Bank Leumi, the country's largest bank is controlled by the government, which has a small 10.4% holding. The Bank of Israel long ago determined that the controlling core in Bank Leumi should have at least 20% of the shares. The government reached its present minimal holding after a series of sales of share packages to investment houses, while the Ministry of Finance and Bank of Israel never intended, do not intend or plan the financial sale of Leumi's shares but rather only a sale that would ensure a "controlling core." In other words, known private owners, who would receive a license from the Bank of Israel that would permit them to take responsibility for managing the bank.
Is a "controlling core" an obligation in light of the current reality and is such a condition justified and correct? In fact this is not the issue. Not even due to the fact that the government enacted legislation years ago - the Marani Amendment to the Banking Law that determined regulators conditions for managing a bank without a controlling core.
However, during the legislation procedure and since the law was passed, there has been no intention to let it actually happen. In reality, the Bank of Israel and the Ministry of Finance decided without formally making a decision and declaring it, that the Marani amendment is problematic, that control must be transferred in a closely supervised manner to a known, recognized and clear owner. Consequently it will be easier to call the owner to order and make demands.
It was said during the days of the banking boom and profitability that there is no experience of this in Israel and we won't make experiments with one of the country's two largest banks. Now with exposure to the failed financial management worldwide and in Israel, and the more we find out about problematic management methods and decision making in Israel's banking and institutional market, the stubborn stand regarding the controlling core is intensifying and strengthening. The controlling core will continue to star in Israeli banking at least until institutional bodies can prove that they are responsible employees who know how to manage, and know how to protect the interests of the public who have trusted them with their money. Meanwhile, this is not the case.
In short, the only future alternative in closing the vicious circle from the banking crisis in 1983 is to sell the controlling core of Bank Leumi. However, the government does not have enough shares to sell the controlling core. There is no chance, and this has been proven again and again, that either a body or a businessman with status and capital, will be prepared to participate in a tender that goes on for months, surmount the hurdles to receive a license, meet Israel's unique conditions and demands and then manage the bank and all its risks for just a 10% holding let alone 20%.
The problem is a public, political one. Even today, many months after the outbreak of the global crisis, the government is yet to inject one shekel into the economy. All the plans so far have seen money pass from one pocket to another. Now they will spend NIS 1 billion or NIS 1.5 billion to save two tycoons. And not just any two tycoons but rather two American tycoons who always strived to tell us how smart and successful and progressive they are, while we were old fashioned, primitive Bolsheviks.
Yet despite that yes the government must buy so that it will have a controlling core to sell to a worthy buyer.
Published by Globes [online], Israel business news - www.globes-online.com - on April 19, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009