Who are the Israeli Finance Sector Coming Comets?

Part I

That fat, swarthy, sweating lady at the Bank told me that in 2007 the finance sector will the most successful one so I must focus my portfolio on it. Buy Bank Index Fund. Coming from a bank employee, the order was expectable. But I dont like assertive Yemeni women. She did nothing to me, true, still I am entitled to cultivate in private my prejudices. (The pic is not she. Yemeni Jewish women do not hide their faces but they sport them framed by gold coin pendants.) She argued that the bank industry had had a bad 2006, its value did not grow, so it may converge with the rest of the TASE in 2007. Is that an argument? It makes sense to invest in a sector that is a retard (Borat is talking through me) as compared with the market as a whole. It makes less sense to invest in a segment that advanced further than the market. Or is the reverse true?.). In 2006, the finance industry has done exceedingly well all over the world. It is the largest industry in London and in New York. It is the best paying industry all over the world. Goldman-Sachs gave out bonuses of 600,000 dollar per employee. Why in Wall Street and not in Echad Ha Am Street? Are the Jews here less Jewish than the Jews there?
I feel the advent of good times for the Israeli finance industry now for almost a year. I had invested in Anter Holdings of one Amit Berger, but the firm underwent unexplained transmutations and its price is down (see chart). I am losing some 25% of my money, moderated by a juicy dividend.

So I am actively searching for vehicles to ride the coming wave. Applying the trans-fat Yemeni lady's wisdom, having done so terribly in 2006 is a sign that it will do extreemely well in 2007.

Part 2

This is Ilan Ben-Dov, an Israeli businessman and playerboy, a former partner of Amit Berger. He too is mentioned in the Landau Report, a private analysis (normally you have to buy these quality things), which someone uploaded on the net, explains in detail what happened during the Bachar Reform.

Salomon Capital Markets, a small investment house recently acquired by two aggressive young entrepeneurs, Amit Berger and Ilan Ben-Dov, announced the purchase of 45% of Ilanot, a large mutual fund management company in which Israel Discount Bank held the other 55%. The seller of the minority stake in Ilanot was IDB Investment Corp. which owned, inter alia, both Clal Insurance and the Batucha Investment House. IDB actually offered its stake to Clal Insurance, but the latter declined to buy at what it considered too high a price. This price-tag was NIS230m, equivalent to some 3.6% of Ilanot's current assets under management (AUM) of Ilanot, and most of the initial reaction to the deal, in the press and in private conversations, tended to the view that this was a high valuation – and hence a rash acquisition, especially since the purchase left the buyer without a controlling stake in the company. Once again, the consensus was quickly proved completely wrong. On September 8, 2005 Israel Discount Bank stunned the market by announcing that it was exercising its right of first refusal with regard to Ilanot’s shares, and would buy the IDB stake at the price offered by Salomon. This extraordinary and rather ironic development – a bank buying more mutual fund assets, when it was supposed to be selling those it owned – also suggested that Salomon's offered price was actually reasonable, and not absurdly high, as many were claiming. Further confirmation of the valuation came a week later, when Bank Leumi sold the smaller of its two mutual fund groups, PIA, to Harel Insurance Company, for a price reflecting a slightly lower valuation, some 3.3%, in terms of AUM. Thus by mid-September, several things were already clear: there was serious interest in buying the companies on sale, to the point that it now seemed that moving quickly was advantageous and indeed necessary. Furthermore, three separate deals (IDB-Salomon; Israel Discount Bank–IDB; and Leumi-Harel) had now established a price range for mutual fund assets. This price level proved to be the floor for future deals, rather than the ceiling or the mid-point. One or two minor deals between smaller banks and smaller insurance companies in late September and early October, hinted that there would be no “holiday
season” in a sale process that was quickly gathering momentum. But the next major event still took everyone by surprise, since it was announced on October 16, the eve of Yom Kippur and normally the slowest period of the business year. Once again the buyer was Salomon, which had been foiled in its attempt to buy Ilanot -- whose NIS14 billion of assets represented an 11% share of the mutual fund market. This time the minnow was aiming even higher, at the leviathan of the industry: Bank Hapoalim's PKN, whose assets totalled some NIS20.7bn and whose market share was above 15%. The price Salomon was prepared to pay, NIS954 million,represented a valuation of 4.6% of AUM, and hence a significant increase in the price level from the 3.3-3.6% level established in the previous deals. Once again, most pundits poured scorn on Salomon for having overpaid, accusing Amit Berger in particular of being on an ego-trip – and once again they were quickly forced to eat their words. At the end of October, the Markstone private equity fund bought a 60% stake in Salomon, thereby becoming the ultimate owner of PKN and also providing Salomon with the funds it needed to finance the PKN purchase.

Many legal and regulatory changes that will only take effect later and that create a need or incentive to delay closing the deals until they are finalised and in force. As a result, for example, the Markstone purchase of Salomon Capital Markets is entirely 'on paper', since the latter has not actually bought any of the mutual funds and provident funds it has committed to buy. Berger and Ben-Dov have thus created a company, 'bought' NIS60bn of financial assets, 'sold' most of their holding in their company to Markstone at a large profit – all without having invested any hard cash, or borrowed additional resources.

I want to be like Amit Berger. (I know, I can only be me, and at my age, even that's very dubious).

Part 3

The Markstone Capital Partners bought a small fund operating within the Bank Poaley Agudath Israel, the haredi bank. Money under management of 3 million shekel. Peanuts! I didnt know funds so small even exist. Markstone sees place for these small niche markets, and intends to take over them. The next is the Russian immigrant market. 3,000,000 shekel paying 3% annual management fees = 90,000 shekel = 7,500 shekel p.m. = a salary. Why not me? Eytan Mizrahi, my fellow engineer from Tahal, managed his own inheritance of 1 M and had two family clients of another 1 M. He moved the money between state debts, Mexican bonds paying more and inflation, etc. He didn't work as employee, this is what he did. Amit Berger's Anter Holdings sold debentures to pay for its acquisition of Tiv Tam supermarket chain. The papers pay 13% interest, 2.5 years, in indexed shekels. The Chinese savers receive a miserly 2 or 4 % in yuan, linked to the inflationary US dollar. How an arbitrage or minorist business could be built? Without going far as China, many Israeli niche savers get miserly yields. The small haredi savers are one group. The Russian immigrant pensioners are probably another. What about Arabs? Palestinians?