The harder they fall: The demise of Israel's tycoons
Billionaire Nochi Dankner’s collapse underscores the demise of a whole class of tycoons and the end of an economic era.
By AMOTZ ASA-ELNochi Dankner(photo credit: Courtesy)
HE WAS corporate Israel’s poster boy.Charismatic, authoritative, and clever, the handsome – Alec Baldwin look-alike – Nochi Dankner personified a Zeitgeist of capitalistic relish, risks, profits, and conceit, soaring to big-business stardom only to ultimately stare at financial ruin, legal conviction, and now also an approaching prison term.The 62-year-old Dankner was sentenced December 5 to two years in jail and an 800,000 shekel fine for stock manipulation, after having been previously forced out of IDB Development ‒ the holding company that, during his 10-year chairmanship, slid from a $10 billion market value to the brink of insolvency.Dankner is not alone.The week after it sentenced Dankner, the same Tel Aviv District Court ordered into receivership the assets of 73-year-old Eliezer Fishman, the deposed chairman of Jerusalem Economic Corporation and owner of the Globes business daily, after he reportedly accumulated 4.5 billion shekels in delinquent debts. The ruling followed a Tax Authority bankruptcy request that claimed 196 million shekels in unpaid taxes.In June, real estate magnate Moti Zisser, who had built more than 50 shopping malls in Europe and Israel, died of cancer at age 61, after losing his debt-ridden flagships, Elbit Imaging and Europe Israel ‒ one to bondholders and the other to the receivership where his opulent villa in Petah Tikva also ended up.In 2014, the board of Scailex Corp., successor to the hi-tech powerhouse Scaitex, ousted chairman Ilan Ben-Dov shortly after his leveraged 5.3 billion shekel buyout of cellphone operator Partner ended with its frantic sell-off, while Bank Leumi chased after him demanding 62 million shekels in unpaid debt, ultimately obtaining foreclosures for portions of Ben-Dov’s shares, properties and seven bank accounts.Finally, albeit less dramatically, diamond mogul Lev Leviev’s purchase of holding company Africa Israel, whose market value he had originally planned to double to 7 billion dollars, ended instead in the red and with two debt restructurings as bondholders demanded 3.2 billion shekels of unpaid debts.Added up, these corporate sagas, obviously, paint a picture that is larger than any single individual and, indeed, spell the end of an era ‒ one in which post-socialist Zionism’s new hero, the entrepreneur, was confused with any peddler of capital.
Having said this, Dankner’s case is unique, in three ways.First, his cousin, Danny Dankner, the former chairman of Bank Hapoalim, is also a fallen tycoon. Secondly, besides falling financially, both also have been implicated legally. Thirdly, and most importantly, the Dankners were well born, whereas the other fallen barons were self-made.THE DANKNER tribe’s origins are rooted in Ottoman Palestine, where Nochi’s great-grandfather, Meir, joined the founders of Petah Tikva after robbers murdered his father, in the son’s presence, in the father’s sawmill in Austro-Hungary.Meir’s son, Nochi Dankner’s grandfather Moshe, won a franchise from diamond empire De Beers and set up a 100-employee diamond- cutting factory in Netanya. Moshe’s brother, Oved Ben-Ami, founded Netanya itself and was its mayor for nearly 40 years.In 1957, Moshe bought Israel’s main salt producer, Salt Industries Inc., which James Rothschild had willed to the Jewish state.Coupled with his diamond business, it served as the base for a sprawling business empire that he divided between his two marriages’ 11 children: the first wife’s six children were willed the diamond business, and the second wife’s five children got the rest.That is how one of Israel’s first family- based holding companies, Dankner Investments, was intact and growing as early as 1957, steadily accumulating assets ranging from real estate to chemical industries.As power shifted to the next generation, that of Nochi’s father and siblings, Uncle Shmuel emerged as the dominant decision maker, in what now seems like the saga’s golden era.The siblings were equal partners, while conferring management between three of them: one led the salt business, another headed the chemical industries, and Shmuel led everything else. Now 86, he displayed an ability to grasp where history was headed and get to its opportunities ahead of others.In the 1980s, as the cable era approached Israel, Shmuel invested in cable operator Matav, and as Israel expanded economically, he established fuel supplier Dor Energy.Then, as communism unraveled, he led an international consortium that spearheaded the privatization of Poland’s telephone system.Before that, as the Russian-speaking immigration accelerated, he intensified the family’s construction in Israel of neighborhoods, office towers and shopping centers.Explaining his decision to invest in Poland, Shmuel Dankner said he looked for a post-communist economy that would be sizable on the one hand, but have a reliable court system, on the other. The legal moonscapes to Poland’s east were not the kind of setting in which he would do business.As the new millennium approached and the next generation emerged in the boardroom, Uncle Shmuel’s fine balance of risk and caution would gradually be shed.DANKNER FAMILY codes meant power would remain within the clan and gradually pass to the next generation.There was also general agreement that, of the next generation’s 16 cousins, Nochi, a successful lawyer in his 40s by the mid-1990s, was the best suited next to lead the empire.The question was where to lead the empire.Nochi and his cousin Danny wanted to venture into banking. Uncle Shmuel disagreed.In 1997, this clash came to a head as the two cousins bought, through Salt Industries, an 11.6 percent stake in Bank Hapoalim for 1.4 billion shekels. For the family empire’s 40-year-old harmony, it was the beginning of the end. Two years on, Nochi and Shmuel split when the uncle led a 100 million dollar purchase of the nephew’s shares, as well as those of Nochi’s father, Yitzhak.Nochi and Danny, a pair of worldly and ambitious Sabras – the former was editor of Tel Aviv University’s law journal, the latter earned an MBA at the University of Massachusetts – thus had been freed of the expanded family’s scrutiny and norms.Nochi’s big gambit, the purchase of IDB Development, would arrive in 2003, and Danny’s peak, his appointment as Bank Hapoalim’s chairman, would come in 2007.Danny’s comet would burn sooner.In an exceptionally interventionist move, then Bank of Israel governor Stanley Fischer forced Dankner’s resignation from Hapoalim’s chairmanship hardly two years into his appointment.The move was never formally explained but was widely believed to have been about professionalism and caution, most notably the bank’s exposure to mortgage-backed investments during the subprime crisis; the reckless purchases of Ukrainian and Russian banks; and the removal from the board of public director and respected economist Amir Barnea, apparently for having been too inquisitive.Prison came in 2013, when Danny Dankner was convicted of, among other things, having taken a personal loan from the bank he headed, and of having had the bank favor a Turkish business partner whose association with him he failed to disclose to his board.Dankner-the-banker was sentenced to a year in prison that was later shortened to eight months of which he served six last year, only to be convicted later of bribery and money laundering in the infamous Holyland affair, in which Ehud Olmert also was convicted.Danny Dankner now got two years.Nochi Dankner’s path to ruin was different.A former major in air force intelligence, Nochi Dankner’s big moves were a series of attempts to guess ahead of others the maturing Israeli economy’s next opportunity.The first of these investment targets was travel, an industry that Dankner rightly figured would thrive as the Israeli middle class expanded, while regulators made multiple air routes accessible to new competitors.That is how he opened Ganden Tourism and Aviation, with which he bought Israir, a domestic and charter airline that gradually competed with El Al, at one point also on the route to New York.It was through Ganden that Dankner bought IDB in 2003 from the Recanati family, in what appeared to be a well-timed move considering that the sprawling holding company had suffered greatly from the second intifada, whose tide was by then turning in Israel’s favor.Dankner initially made wise moves, bringing fresh cash by shedding old holdings such as shares in Scaitex and Bank Discount, soon shifting the losing company into the black.MOREOVER, AT a time when mobile phones were becoming a fixture of personal life, the intelligence veteran in Dankner understood the unfolding era’s opportunities ‒ expanding investment in Cellcom and also selling its shares on Wall Street, thus consolidating its domination of the Israeli market and, while at it, bringing in fresh cash.Dankner intensified his presence in Israeli households through the retail industry.Already owning dominant supermarket chain Shufersal, he bought the industry’s third-leading company, the ailing Clubmarket, and merged the two, thus cornering the supermarket industry.Dankner then bought the Koor conglomerate from the Bronfman family, which included hi-tech powerhouse ECI and crop-protection giant Makhteshim-Agan. At that point, the total value of Dankner’s companies was estimated at some 100 billion dollars, making him the dominant businessman in Israel.Had he now taken a step back, Dankner might have survived the upheavals of the upcoming years but his appetite drew him to new adventures while the intelligence officer in him fell asleep.Dankner failed to see the approach of three major corporate tsunamis. The first was the subprime crisis.In spring 2007, Dankner and energy tycoon Yitzhak Teshuva bought the veteran hotel and casino New Frontier on the Las Vegas Strip with the intention of demolishing it and building in its place a 5.7 billion dollar replica of Teshuva’s fabled Plaza Hotel in Manhattan.The demolition went well, but when it came time to build, the Wall Street meltdown was afoot, the real estate market was in the doldrums and the project was canceled.Dankner lost 300 million dollars.The second miscalculation concerned Swiss banking.Having gradually spent nearly 7 billion shekels while accumulating a 3.24 percent stake in Credit Suisse, Switzerland’s second- largest bank, Dankner seemed on safe grounds even in the aftermath of the Wall Street meltdown, the shocks of which the Swiss bank and currency largely sustained.The problem was that authorities in various countries, led by the US, were investigating Credit Suisse’s alleged complicity in clients’ tax evasions, allegations that eventually were vindicated. As news of the investigations broke, the bank’s share price began sliding, falling within two years from 60 to 20 Swiss francs. Dankner now saw another major investment go down the drain, as failure followed him from Nevada to the Alps.Even so, Dankner’s worst failure of foresight happened at home.The eruption of the social protest movement in spring 2011 turned a spotlight to the corporate deformities that had raised consumer prices. In these, Dankner played first violin on two stages: supermarkets and cellphones.The new consumer awareness drove clients away and pressured Shufersal’s prices and revenues. Worse, the new motivation of politicians to impose competition ultimately resulted in the mobile communications market’s restructuring, which, in turn, sharply cut Cellcom’s profits.With all these tempests gathering from entirely different directions, it now turned out that Dankner’s far-flung investments were disproportionately leveraged. The holding company he had bought debtless, now owed some 2 billion shekels.Dankner now engaged in a rear end battle to save his position. He decided to sell shares again. Alas, with his back to the corporate wall, Dankner now turned to the felonious exit, as he had a colleague buy shares on the eve of the offering to artificially drive up their price. His summons to Securities Exchange investigation soon followed, as did his ouster from IDB.FINANCIALLY, NOCHI Dankner’s rise was part of the rest of the tycoons’ zenith, and such was also his downfall. The entire bunch, from whatever backgrounds, borrowed excessively and made some very ill-fated investments – including Teshuva, though his fortunes turned out differently thanks to his central role in Israel’s huge gas finds.In this regard, the tycoons added up to a Zeitgeist, one that came in tandem with the last decade’s age of privatizations that assumed the entrepreneur was blessed with all the wisdom that governments lack. This era is now over, as all have learned the hard way that, unlike Michael Douglas’s memorable statement in the movie Wall Street, greed is not good for you, even if you are a financial baron.Socially, however, the Dankners were different.Nochi and Danny were born with silver spoons, unlike Zisser, who was born to poor Holocaust survivors; or Fishman, who at age five landed here from Russia in an immigrants’ camp; or Leviev, who at 15 worked as a diamond cutter’s apprentice after having arrived in Israel from Bukhara; or Ben-Dov, who was raised humbly in south Tel Aviv where he sold sabras (cactus fruit) to passersby.That may explain why the Dankners were not plagued by nouveau-riche syndromes like Leviev’s propensity for lavish dwellings in multiple lands, including a 70 million dollar mansion in London’s Highgate neighborhood, and a 61 million shekel plot in Savyon, where he is now building one of Israel’s biggest private estates.Having never known hardship and always having enjoyed access to old money, the Dankners had less of an urge to impress people with such displays of personal wealth. They just wanted to be bigger than Uncle Shmuel.