Regulator seen approving Dankner debt deal

The Bank of Israel will need to tread carefully, but will probably approve the NIS 150 million write-off for Nochi Dankner's Ganden.

When he appears before the Knesset Finance Committee on Tuesday, Supervisor of Banks David Zaken will reportedly ask for more time to give an opinion about the debt settlement for Ganden Investments Ltd., through which Nochi Dankner controls a target=new href=http://www.idb.co.il/>IDB Holding Corp. Ltd. (TASE:IDBH). The Bank of Israel is trying to walk a tightrope: it does not normally intervene in debt settlements by the banks, but it is worried about the rising consumer protests against the banks, and cannot know how this will end. Zaken is the one who has to clean up the mess and get everyone to calm down: he must both give the politicians and social organizations a way to back down and also rescue Bank Leumi (TASE: LUMI) chairman David Brodet and CEO Rakefet Russak-Aminoach.

Zaken will mainly review Bank Leumi's decision in 2008 to forego for Nochi Dankner a clause in the loan agreement requiring him to use dividends from IDB Holding to repay Ganden's loan. Had this clause been in place, most, if not all, of the loan would have already been repaid. Zaken will also have to examine whether the discussion about the terms was businesslike or affected by social considerations, a matter of give me credit and I'll see to jobs for your children and friends. If he finds improper conduct, he may very well demand that the banks should publish reports, and require former and current bank executives to return their bonuses, if it turns out that they approved loans improperly.

Meanwhile, before Zaken's review is complete, he will appear before the Finance Committee at the summons of its new chairman, MK Nissan Slomiansky (Habayit Hayehudi). Zaken will have to answer questions about Bank Leumi's plan to write off part of Dankner's debts. He will have to find a delicate and precise formula, which he will unquestionably draw up with Governor of the Bank of Israel Prof. Stanley Fischer. Zaken is not expected to intervene in the debt settlement proposal, because the Bank of Israel dislikes such interventions, but he will therefore have to assuage the of the opposition and the public, which has suddenly discovered the truth: the banks write off debts of big creditors. He will probably ask for more time to conduct his review and obtain answers from Bank Leumi. He will also need calm in the hope that the public and MKs will move on to other issues.

Seeking to avoid the next cottage cheese protest

Yesterday's announcement by the Bank of Israel, followed by the announcement by Bank Leumi, was mainly an attempt to placate protesters and is unlikely to result in any change in the proposed debt settlement for Ganden. Zaken does not need queries by Minister of Finance Yair Lapid, as happened yesterday when Lapid asked him to review the proposed debt settlement. The Bank of Israel had already examined it. In fact, on Sunday, Brodet and Russak-Aminoach met Zaken at his office at the Bank of Israel in Jerusalem, and the write-off for Dankner was probably on the agenda.

Several quarters ago, Zaken became personally acquainted with the debt of Ganden and its parent company, Tomahawk Investments Ltd., Dankner's troubled private companies. It is possible that only then did Zaken learn about the missing clause in the credit arrangement. In any event, the Banking Supervision Department has been closely monitoring developments in Dankner's debts at Bank Leumi and at Bank Hapoalim (TASE: POLI), Mizrahi Tefahot Bank (TASE:MZTF), and Israel Discount Bank (TASE: DSCT), which provided Dankner with their best credit. Zaken was aware of Brodet and Russak-Aminoach's intention of writing off part of Ganden's debt in this quarter.

Zaken apparently had no plans to intervene publicly in the matter, both because he knew about it, and because it fell within the broad discretion given to bank executives. But then came Lapid, who approached him through Accountant General Michal Abadi-Boiangiu, who is responsible for the government's 6.03% stake in Bank Leumi, the remainder of the government's former controlling stake in the bank. At the same time, MKs and public figures also approached Zaken about the matter, and concern arose about a consumer rebellion against Bank Leumi.

The Bank of Israel and Bank Leumi realized that they had to play the game, unless they wanted to see another cottage cheese protest, only this time, against the banks. Bank Leumi's executives saw how, within hours, a Facebook protest was organized and demonstrations against the bank were planned. The bank therefore made the ostensibly dramatic announcement that it was suspending talks on the debt settlement. Why ostensibly? Because until a debt settlement has been signed or implemented, there is nothing to suspend.

A debt settlement proposal was reached around Purim, and there has been almost no progress since then. Bank Leumi has been waiting for Mizrahi Tefahot Bank, Ganden's second biggest creditor, which extended Ganden NIS 80 million, to reach a debt settlement, and for the bondholders of Ganden's subsidiary, IDB Holding, to approve their debt settlement with the company. All three settlements are conditions for Eduardo Elsztain to inject $75 million into Ganden.

But the end of the story is probably foretold. The Bank of Israel will find an elegant way to approve the Ganden debt settlement, and Bank Leumi will move on, but the parties will try to get the timing right, when the public is distracted by different headlines.

Published by Globes [online], Israel business news - www.globes-online.com - on April 18, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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