Beny Steinmetz is one of the country's richest people. He is an affluent businessman with holdings that span the world. Steinmetz is also one of the best known global businessmen in Israel. He is often featured in gossip columns but jealously guards his privacy, refusing to be interviewed, hardly says a word, and reveals no details about his businesses.
Until today, when Steinmetz took the unusual step of making an eight line statement to the Tel Aviv Stock Exchange (TASE) that in essence said, "Scorpio's debt is not my problem and I have no intention of standing behind it."
This is likely to be very embarrassing for him. Bank Hapoalim (LSE: 80OA; TASE: POLI) has not be deterred from taking Steinmetz to court and putting him on the witness stand to disclose details about his business, his debts and the depth of his pockets. At the very least the present situation will be unpleasant for him.
It is unlikely that Bank Hapoalim believed that this would happen to them. Businesspeople are supposed to meet their commitments, especially those who have resources with which to repay money many times over. Diamond merchants reach agreements worth hundreds of millions of shekels with just a handshake and without need of signing documents. But Steinmetz, a diamond merchant, a businessman and billionaire suddenly decided that he is not playing according to the rules.
From his point of view, the debts belong to Scorpio and he feels what do they want from me and what's my connection. Even if he is right legally, and that will be tested in court, it's a difficult attitude to digest.
Only a week ago the financial media celebrated Steinmetz's exit in Guinea. They praised the main who knew how to transform iron into gold. But now a different Steinmetz is being revealed as a businessman who wriggles out of, and not elegantly, debts of NIS I billion.
Most of the debt, by the way, is not to Bank Hapoalim but pension money belonging to the public via bonds that Scorpio issued.
A businessman in the 21st century world cannot exist without the banks that give him credit. Banks have long memories and a tendency for revenge, so that somebody who ignores his debts is likely to be greeted with a cold shoulder in the future.
Banks also tend to talk to each other and tell on customers that they should be wary of. Steinmetz has undertaken an interesting experiment, not the haircut for the institutions that e have already got used to but now we see an exercise in forcing the hand of a big bank. It doesn't matter how it will end, Steinmetz's reputation and good name as a businessman have already been harmed.
And that's not all. As a businessman who issues bonds he relies on his good name. "I stand behind my company" he says to institutional bodies. A businessman who wriggles out of his debt, even if its legal, will find himself with the door slammed in his face next time he wants to raise capital.
And one more point. Steinmetz has made himself into a test case. Banks are used to doubtful debt, which is part of the rules of the game, but in this instance Steinmetz has created a dangerous precedent. Bank Hapoalim's real concern is not having to set aside several hundred million shekels of doubtful debt because of Scorpio's business failure. The problem is that evading debts can be contagious. Tomorrow it will be somebody else. If Steinmetz is triumphant in this case, tomorrow 30 more such cases will arise. And that already will be dangerous.
Published by Globes [online], Israel business news - www.globes-online.com - on May 11, 2010
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