Israelis Rise Up Against the Oligarchs, a group of 20 families that control about 50 percent of the value of the Tel Aviv stock exchange

Israelis Rise Up Against the Oligarchs

By David Wainer and Calev Ben-David on April 25, 2013

Ilyan Marshak was outraged when he heard that Bank Leumi would forgive as much as $42 million in debt owed by companies controlled by Nochi Dankner, one of Israel’s so-called oligarchs—a reference to the group of 20 families that control about 50 percent of the value of the Tel Aviv stock exchange. Marshak wanted to know why a rich man was getting a break while he worked odd jobs to pay off about 100,000 shekels ($27,600) of debt. “These tycoons are getting bargains because of their influence in our economy, and that comes at the expense of the public,” says the 28-year-old Tel Aviv resident.

Marshak was one of thousands who posted on a Facebook (FB) page titled “Bank Leumi Consumer Boycott,” after a local paper reported in mid-April that the bank had agreed to erase some of Dankner’s debt as part of a broader corporate debt restructuring. The scion of a family that made its fortune in table salt and real estate, Dankner has spent the past 15 years building his own sprawling empire, which includes the country’s biggest supermarket chain, Shufersal (SAE), and its largest mobile operator, Cellcom Israel (CEL). The deal with Leumi would have allowed the businessman some breathing room as his IDB Holding (IDBH) struggles to meet payments on about $560 million in debt.Reports of Leumi’s arrangement with IDB hit a nerve in Israel, where there is a perception that inequality is growing. In 2011 thousands protested rising food and housing prices, along with the political and economic influence of the business elite.

Bank Leumi, Israel’s No. 2 bank, at first tried to shrug off the controversy, with Chairman David Brodet telling Army Radio on April 18 that while the lender was “attentive to the public outcry,” the debt settlement with Dankner would go ahead. The Bank of Israel weighed in, saying regulators would review the deal, while a parliamentary finance committee put out a statement saying it would hold a special session to discuss “debt arrangements made by banks with tycoons.” Then on April 19, Leumi Chief Executive Officer Rakefet Russak-Aminoach announced that the bank was walking away from its deal with Dankner.

“The rules of the game have been changed, as the public can quickly mobilize on the Internet,” says Shlomo Maoz, chief economist at Alfa Platinum Investment House. “This is the first time a bank caves in to public pressure and ditches a well-connected businessman.”

In an April 20 letter to employees, Dankner noted that banks in Israel had restructured $5 billion in debt since 2008, and suggested he was being unfairly singled out. “It’s easy to destroy,” he wrote. “It’s much harder to build.” In response to questions from Bloomberg Businessweek, IDB e-mailed a statement that said: “We are convinced that we will reach a fair agreement with the banks.”

After Leumi backtracked, social activists took to the Web to celebrate. Eldad Yaniv, a well-known figure on the Israeli left, posted on Facebook, “We have the power to make an impact on forces which until only yesterday seemed too strong for us.”

The bottom line: Bank Leumi has backed away from a deal to forgive as much as $42 million of a tycoon’s debts in the face of protests.