It's early evening, and through the window of the office of Itay Makov, head of investment banking at Citi Israel, on the eleventh floor of one of the office towers on Tel Aviv's Ha'arba'a Street, the city lights can be seen coming on one after another. In another few years, this view will be blocked by the towers of the Sharona luxury real estate project that, together with other high-rise residential projects, symbolizes the strength of the post-crisis Israel economy.
Another sign of the Israeli economy's strength is the fact that Makov is very busy these days, among other things because, together with UBS and Deutsche Bank, Citi is leading the London flotation of Yitzhak Tshuva's Delek Group. "Why is it we particularly who are leading the offering? Very simple," Makov smiles, "It's because of our ability to do offerings in London, because of our relationship with Delek Group, and of course, because of Citi's global capabilities, including the ability to distribute shares.
"In the past two years, we have built an important platform in equities, and we now handle 10-15% of the daily volume in equities on the stock exchange for foreign institutions," he explains. "We participate aggressively in all the big transactions, whether the seller is private or government. Only recently, we successfully distributed the state's shares in Discount Bank, and Shari Arison's shares in Bank Hapoalim."
Will you bid to distribute the state's shares in Bank Leumi?
"Yes. There are basically only three players in this field: Citi, Deutsche Bank, and UBS, and we will bid for the distribution."
How come there are only three banks in transactions of this kind?
"It's because the other foreign banks don’t manage to be aggressive enough and obtain authorization from their overseas head offices for these deals."
"High tech is just another industry"
Like many of the foreign bankers active in Israel, Makov grew up in mergers and acquisitions of high-tech companies. Like many, he went from high-tech flotations to flotations of regular companies. "Up until 2000, in the euphoric period, high tech was the basis of M&A, but for several years now, the offerings market has been made up of many fields that are not high tech. Today, you see more and more companies coming out of Israel in fields such as energy, real estate, chemicals, pharmaceuticals, that need investment bank services. The number of successful high-tech offerings coming out f Israel has fallen, and today, they are just one more industry. To my mind, that is a healthier situation for the economy, and for the foreign banks."
What do you think will happen with flotations in 2011?
"I see more and more Israeli companies ready and willing to make offerings overseas, on Nasdaq and in London. I presume that some of the offerings will happen."
Will there be more successes like Sodastream?
"Credit to Sodatream; it's a consumer product company, which is rare. Three brand names have come out of Israel that the person in the street recognizes: Uzi, Jaffa, and Gottex."
We saw how Modu collapsed. Can a dream company be floated these days?
"The international market is not ready for dream companies, and wants to see a business model with clearly proven feasibility. With another two good years on the markets this might change, and investors will go down the scale to young, promising companies. It happened in internet and biotechnology, and it could happen in cleantech. But the market isn't there at the moment."
When a company comes to choose the investment bank for its IPO, what advantage does Citi offer?
""The Economist" recently wrote that there are only two truly global banks: Citi, and HSBC. Citi brings with it global and sectoral expertise. If, for example, we are working with an energy company, we come with a global energy team, and that gives added value. When I work with a real estate company, I bring in a real estate expert."
What does it mean that Citi is a global bank?
"Citi is deployed and is accessible in 109 countries, more than any other bank in the world, and you'd be surprised where Israeli entrepreneurs get to. They are to be found in very hole in the globe. Our global network is a big advantage. I give service to global US and European companies here in Israel. The Israeli companies that I introduce into the Citi network receive the service they need from our local activity, sometimes regular banking service, sometimes an acquisition.
"When you consider activity in a certain country, it's worthwhile hearing from locals with a Western hat what can be done and what's worth doing, for example, in places like Thailand and Vietnam; certainly in India and in China. We have people who specialize in India, and anyone who wants to do a deal in India should understand what's happening there."
Our previous meeting with Makov was in the winter of 2009, a few weeks after the US government rescued Citi with a huge cash injection. "We have emerged from intensive care, and we are in recovery," is how he described Citi's position at the time. Today, Makov sounds completely different.
"Citi is in a great position, relatively speaking of course. Citi got into problems before other banks, and emerged before them. Banks in Europe have high exposure to the PIIGS countries, and that will continue for at least two years, but for US banks the exposure is negligible, and Citi is in the best position because it has global reach and revenue from emerging markets more than any other bank. These markets are where the growth of the next twenty years is to be found."
Selective
What is your goal in Israel?
"Our goal is to grow in Israel, unequivocally, and a lot. To take a larger share of the global activity of Israeli companies, and a share of the international companies active in Israel, like HP or Procter & Gamble."
What about activity with Israeli companies in Israel?
"Citi has already been in Israel for a decade, and that's a substantial advantage. In investment banking you come, close a deal, and all you need is a hotel room, a telephone, and a computer. In commercial banking, you build a relationship over time. Holistic relationships with customers in a variety of services: interest rates; dealing room; commodities. Our dealing room is one of the most active in foreign exchange and interest rates, and it speaks to the customer daily."
Your main banking activity is still extending credit.
"We are in a business that aims to make a profit, and giving credit interests me. I have a product called money, but I don’t give money just like that. Banks around the world and in Israel currently have to be much more selective in managing their capital and extending credit, and I give it to customers who do many things with me."
So as far as you are concerned, credit is not a main product.
"No. We will never give credit as a single product. I give customers a package that includes international electronic banking, a dealing room that provides a response for every product and access to information in every country in the world 24 hours a day. That is what foreign banking brings. To every customer for whom I provide services I give credit or loans or credit lines, but my aim is something else, to give added value on non-standard products."
On an international comparison, what are the spreads on business credit in Israel?
"The local banks have high capabilities, and abundant credit. The market is very liquid, and the bond market is also developed it has a very strong, inherent domestic bias that creates considerable competition for the banking system. The spreads on business credit in Israel are therefore very competitive, and a foreign bank will never be able to compete with the Israeli banks in deposits from the public. Sometimes I can't live with this, and if the spread is too low I won't give the money."
What is Citi Israel's exposure to the local credit market?
"The exposure is in the billions of dollars, with the biggest customers having a credit portfolio of half a billions dollars, and the rest $100-200 million. The local credit committee can give credit of tens of millions of dollars. Beyond that, authorization is required from a credit committee in London. But I don't feel that I have a capital limit. You need to grow responsibly, over time."
How come Citi isn't financing gas exploration?
"Other foreign banks (Barclays and HSBC E.P.) gave finance for the Tamar well, and sold part of it. All these cross our desk, but when we look at the loans, we take into account many parameters, and we didn't do this deal. On the other hand, we did a deal no less large: we lent Delek $160 million to buy Noble shares, which is an exposure to the risk of Tamar and of Delek."
The question naturally follows, what is your opinion of the Sheshinski Committee recommendations?
"I don't intend to respond or to go into that issue. It's an issue between two good customers of ours, the State of Israel, and Delek. I will only say that they ought to solve the problems between them in order to develop the project to the benefit of all concerned."
Together with Morgan Stanley, you financed IDB's purchase of Credit Suisse shares. Isn't that a gamble?
"The credit line to IDB is one of the larger deals we have done here, with each bank giving $500 million. It's an expression of confidence on Citi's part in Nochi Dankner and IDB."
And you're not concerned at the volatility in Credit Suisse's share price?
"In my view, IDB is managing the investment in Credit Suisse responsibly. Naturally, there are ups and downs in the share price, but Nochi has so far demonstrated excellent timing, and the deal is very deeply in the money."
Makov (43) has been with Citi since 1995. He was formerly a research analyst on Israel for Salomon Smith Barney (which was already owned by Citi) in London, and he then returned to Israel and took part in setting up the Citi branch here.
In Citi Israel, Makov has filled several roles. Since 2006, he has managed the investment banking division, and at the beginning of 2009, he was appointed to head a new division that merged investment banking and corporate banking. Makov is the son of former Teva CEO Israel Makov, something that he does not flaunt, and even tries to play down.
"My visiting card is that of a Citi employee, and I don't use my father's name to gain entrée to places or to open doors. I don’t talk about it, and I don't stress it, and I was at Citi before he became CEO of Teva. However, I admit that it's always fun to go somewhere and hear good things about my father, it's a source of pride."
And what is it like now that your father is retired?
Makov laughs. "My father is a very, very busy retiree. When I say to him, come and play with the grandchildren, he doesn't always turn up. He is not a pensioner in the usual sense of the word."
Are you on Facebook?
I'm not - e-mail and telephones are enough for me - but my daughter is.
Published by Globes [online], Israel business news - www.globes-online.com - on January 5, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011