1. Now it is official: the State of Israel no longer rules at Bank Leumi (TASE: LUMI). The state, which formally gave up its control at the bank as part of the Marani Law (officially Amendment 13 to the Banking (Licensing) Law (5741-1981)), yesterday lost its practical influence on the bank's conduct, and became just another ordinary shareholder.
Despite the government's official and public objections to raising the salary of Bank Leumi chairman David Brodet, and increasing the bank's issued share capital, the board of directors chose to ignore the government's position, and put the issues to the vote at the general shareholders meeting, where the board succeeded in getting them passed. The votes came despite objections by Accountant General Michal Abadi-Boiangiu.
2. When the Ministry of Finance wants to send a message, it knows how to do so. The ministry has enough means and power to press, influence, and make things happen the way it wants. This time, it seemed that the government did not really care whether Brodet's salary would be raised by 3.7%.
The proposal to raise Brodet's salary was made in late March. The invitation to the general meeting was published in late June. Although the Ministry of Finance made the government's position clear to Bank Leumi, for some reason, only yesterday, after the media began to question Brodet's problematic pay hike on the eve of a recession and cutbacks, did Abadi-Boiangiu sound a strong public objection. By then it was too late, the investment institutions had already decided how to vote, and they do not normally change their minds after approval by their investment committees.
It seems that the Ministry of Finance chose the convenient solution: on the one hand, it did not wrangle with Brodet, who is one of the ministry's own, and it did not wage a public battle against Bank Leumi; while on the other hand, the ministry took a moral stance and opposed Brodet's pay hike at a time of cutbacks in the economy.
3. For years, Bank Leumi was considered a modest, government bank with conservative bonuses and compensation plans, compared with other banks. "A bank is a public institution. People see you, and think that their fees and interest payments pay your salary, and this trickles down. Within the bank too, large salary differentials grate on everyone," former Bank Leumi chairman Eitan Raff once told "Globes".
Bank Leumi no longer keeps its state image. This summer, it announced that it would eliminate 800 positions, while at the same time raising the salaries of its chairman, and tried to give outgoing CEO Galia Maor a "non-competition" bonus in a controversial way to save her taxes (Maor ultimately gave the bonus up), and it demonstratively ignored a government decision to object to Brodet's pay raise. Even if this is a fairly small raise, and even if his salary is less than those of his peers at other banks, it would have been better had Bank Leumi been smart, rather than right.
4. All the candidates for Bank Leumi's board of directors had quite similar characteristics, and resembled the serving directors: a CPA or academic, and mostly from the business milieu aged 60 and up. The exception was Zayed Abu Habla, an Arab under 40, who could have givens some diversity to the board of directors. The State of Israel also supported his appointment. But he was not elected. It seems that investment institutions are not yet ready to accept directors of a different background. The result is that Bank Leumi's new board of directors looks exactly like its predecessor.
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2012
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