The announcement yesterday that Bank Leumi (TASE: LUMI) CEO Rakefet Russak-Aminoach is stepping down took everybody by surprise yet was still not entirely unexpected. This may seem contradictory but after all Russak-Aminoach had already completed more than a 'full term' (seven years). In her case this also meant a good and quality term, which had made the bank that she led into the country's most valuable, while at the same time she and her colleagues 'earned' harsh social-public criticism from Knesset Members and protestors outsider he house and opposite her daughters' school, while her salary was capped and restricted throughout the sector.
Russak-Aminoach released her resignation letter several hours before the bank's board of directors met in the early evening for its most importaqnt session in a while to choose the new chairman to replace David Brodet. In Russak-Aminoach's letter of resignation, which was addressed to Brodet, she explained that, "I have been recently been deliberating about the right timing of my resignation from the bank. I decided that it would be right to announce the resignation before the bank's board decided on the appointment of the chairperson who will replace you after your term of nine years. That is in order to prevent any comment that might create a connection between the identity of the chairman to be elected and my decision to resign."
Consequently, Bank Leumi finds itself in the same situation of two of its main rivals whose CEOs have just quit - Bank Hapoalim (TASE: POLI) and Israel Discount Bank (TASE: DSCT) with uncertainty and a lack of peace of mind at management level. But Leumi is suffering a double dose. It will soon be led by a new Chairman Samer Haj-Yehia, albeit it that he is an experienced director, and a new CEO. All this is when fintech is threatening the comfortable position that Israel's banks have gotten used to.
Will Russak-Aminoach's departure influence Pepper?
Russak-Aminoach's departure is likely to be significant for Pepper, the digital bank in which Leumi has invested hundreds of millions of shekels.
Pepper was the offspring of two main parents: Russak-Aminoach and Tamar Yassur, who recently resigned as EVP and head of digital banking. With both of them gone in a short while and the chairman who approved Pepper being replaced, it might say something about the future direction of the bank. Only time will tell.
Capping salaries is driving CEOs away
Even if Russak-Aminoach is not quitting because of the salary, the capping of salaries in the financial sector hangs over the process of finding successors for the CEOs of the big banks who are leaving. The departure of Russak-Aminoach continues the flow of senior executives out of the banks and leaves Israel's three largest banks without CEOs. Hapoalim's Arik Pinto announced his departure in April while Discount Bank's Lilach Asher-Topilsky announced her resignation last month. Now Russak-Aminoach has followed suit.
In all these cases, as well as in other financial sectors, especially insurance, the cloud of salary restrictions hovers above. Salaries of senior executives are restricted to up to 35 times the salary cost of the lowest paid person in the organization, which in effect means about NIS 3.5 million per year, which perhaps sounds a lot for the average Israeli, but is not necessarily an incentive to remain such a senior position for many years. It certainly makes it difficult to bring in managers from outside to the sector or even from rivals.
The wave of departures of the CEOs from the three banks as well as two CEOs from the insurance sector (Eyal Lapidot left The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) and Raviv Zoller left IDI Insurance - Bituach Yashir), must be added to other resignations by senior executives including Danny Tsiddon at Bank Leumi, who expressed his anger over the salary caps. So Russak-Aminoach's departure adds fuel to the fire, even if she has linked her leaving to the salary restrictions.
Back in 2016 when the Salary Restrictions Law for Senior Executives in the Financial Sector was enacted, Adv. Pini Rubin, who is very much identified with the banking sector told "Globes," "Now there is discrimination in competition for talented managers between the 'real' private sector and the financial private sector. A financial institution now won't have any real chance to tempt a senior executive from the 'real' sector. Moreover, we will quickly feel an exodus of excellent forces from the financial sector, in order to cross the road and move to a less responsible position and less exposed but with a much bigger salary." That's what Rubin warned and he was not wrong. Discount's Topilsky is leaving to become a partner in the FIMI Opportunity Fund, even though it is believed she could have become Hapoalim's CEO.
Yesterday the Israel Association of Publicly Traded Companies CEO Ilan Flato said that the law limiting salaries in the financial sector has sown seeds of destruction and harmed the quality of management of the public's money. "Like dominoes, almost all the senior executives in the financial sector are leaving because of these deluded salary restrictions. The government's populism is leading to the destruction of the foundation stones of the economy. Today the entire private sector is looking on, concerned that the law will be extended to all publicly traded companies and is excluding itself from Israel's stock exchange. The next government will have to revoke the Bolshevik salary restrictions and work to rehabilitate the damage done by the law."
No controlling core, no address
There is another line connecting the departure of Russak-Aminoach, Pinto and Asher-Topilsky: these three banks together with Dexia, a very small bank, are all operating without a controlling core. First International Bank of Israel (TASE: FTIN) and Mizrahi Tefahot Bank (TASE:MZTF) does have controlling cores.
It is quite possible that the absence of a controlling core has a significant influence on the difficulty of the banks to keep a CEO from the moment that person decides to leave. Without a definite and clear address, there is nobody that can influence that decision or lend support.
Published by Globes, Israel business news - en.globes.co.il - on July 1, 2019
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