Under public pressure, Bank Leumi agrees to suspend debt talks with Israeli tycoon

Bank Leumi suspended negotiations with Nochi Dankner's Ganden Holdings Wednesday night over forgiving tens of millions of shekels in debt following a storm of criticism sparked by an expose in The Marker this week. Among other things calls have been disseminated, including via Facebook, to boycott the bank over its leniency with the business baron.

"Leumi has decided to suspend dealing with the outline of an arrangement with Ganden until completion of an examination decided upon by the [Bank of Israel's] banks supervisor," Leumi said in a statement. But the lender said it had not made a final decision.

"The outline of an arrangement on the Ganden debt, as approved by the board of directors several months ago, constitutes the best solution for restoring the debt to the bank as opposed to alternative existing measures. This is from the perspective of the bank, its shareholders, and the public interest," it said.

The two sides had agreed on write-offs amounting to between NIS 100 million and NIS 200 million of the estimated NIS 450 million in debt Ganden has with the bank. The deal also included an injection of over NIS 100 million cash to Leumi and extensions granted by the bank for the repayment of the remaining debt balance.

Closely-held Ganden, which belongs to Dankner and his family, owns 47% of IDB Holding Corporation, the sprawling investment company whose interests include Cellcom Israel, Clal Insurance and Super-Sol. IDB Holding is itself facing serious debt problems and is trying to negotiate a settlement with bondholders.

The arrangement was conditional on a NIS 75 million in fresh capital being injected into Ganden. That money is supposed to come from the Argentine tycoon Eduardo Elsztain, who last year bought a 10% interest in Ganden for NIS 100 million and is expected to buy another 21% for NIS 280 million.

The bailout has also been contingent on Dankner's reaching a settlement with IDB Holdings' bondholders and on Ganden reaching a debt agreement with Mizrahi Tefahot Bank, which has some NIS 85 million in loans outstanding to the company.

"Obviously, the bank can't show to the public all the facts and considerations that guided it in formulating the guidelines of the settlement, which hasn't yet been signed," Leumi said. "As a result, despite the fact that the bank is paying attention to what the public wants, the public doesn't have access to the full picture."

Since TheMarker expose, public criticism of the bailout had been growing.

The Knesset Finance Committee yesterday slated a meeting for next Tuesday to discuss the debt accord. Banks supervisor David Zaken, Capital Markets Commissioner Oded Sarig and Securities Authority Chairman Shmuel Hauser had been asked to participate, along with representatives of IDB, Leumi and Bank Hapoalim.

Earlier this week Michal Abadi-Boiangiu, the accountant-general at the Finance Ministry, asked Zaken for details on the subject in her role as chairwoman of a government holding corporation that is Leumi's largest shareholder, with a 6% stake. Finance Minister Yair Lapid earlier asked Zaken to examine the deal.

In fact, Zaken had already begun examining the deal taking shape between Ganden and Leumi, along with a pending deal between Ganden and Mizrahi which is owed NIS 80 million to NIS 85 million.

The Bank of Israel said the guiding principle behind the examination is to make sure Leumi has been acting properly in the framework of orderly processes when granting credit. This includes seeing that bank officers, particularly the board and CEO, are acting in the best interests of the bank, its depositors, and shareholders.

"Liquidation or receivership isn't necessarily preferable for the bank over a debt settlement that includes the injection of funds from an outside source while forgiving part of the debt," according to comments from the Bank of Israel.

But echoing Leumi's statement a Ganden spokesman said that the public is not entirely apprised of the issues. "The facts disclosed by the media about private companies controlled by Nochi Dankner are incorrect and inaccurate. The scope of debt is substantially lower. These facts are subject by law to a duty of confidentiality, and in any case we respect the media and public discourse, including any relevant and fair criticism," he said.

Meanwhile, some business leaders said they supported Leumi's decision to forgive a substantial piece of Dankner's private debt, including Alfred Akirov, the real estate developer and Leumi shareholder.

"Rakefet Russak-Aminoach is doing exactly what she needs to do," he told TheMarker, referring to the bank's CEO. "There was no case here of money being divided among friends or relatives. ... As of now, there's no alternative [for Leumi]. The solution is supposed to come from Argentina from tycoon Eduardo Elsztain."