In February 2002, Bank Leumi's chief executive, Galia Maor, inked a new employment agreement, giving her five for years in power. The contract was Leumi's answer to a courtship by Bank Hapoalim, which hoped she would replace the retiring management board director, Amiram Sivan. Maor elected to stay at Leumi, contingent on a long-term deal.

In conversation with Ha'aretz, Maor admits that the two events were not unrelated. "The contract I got was linked to the offer I received from the owners of Bank Hapoalim," she says. "The Bank Leumi board said in its decision that as long as the CEO makes a contribution, changes, and manages to lead the team and improve returns, he can stay on the job."

It is not widely known, but Sivan himself was the person who nominated Maor as his replacement. The two top bankers esteem one another highly. His resignation leaves Maor the most veteran bank chief in Israel. She gained her seat in August 1995. Now she's celebrating 7 years on the job as her bank celebrates its 100th birthday.

Her job is a powerful one, as Bank Leumi is the second-biggest bank in Israel. Moreover, Leumi's capital adequacy has made it the marketplace's biggest lender. The Bank of Israel estimates, based on risk-weighted assets and equity, that Leumi can still provide NIS 40 billion credit, out of the total NIS 70 billion all the banks can provide. That means that Israel's credit seekers are beating down Leumi's door.

Bank Hapoalim is bigger and more profitable than Leumi, but it is headed by a new CEO, Eli Younes, who has yet to prove himself. He was headed by private shareholders who are deeply involved in the bank Shlomo Nehama, Shari Arison and the Dankner cousins, Nochi and Danny.

Regime of the managers

Maor does not have shareholders breathing down her neck. She gets along beautifully with Leumis chairman, Eitan Raff. Leumi is controlled by the state, which is precluded under law from intervening in the bank's operations. The bank is, simply, under a regime of its managers.

The result is that Maor and Raff are free to do as they see fit. Yet Maor insists that the bank operates under a tough system of checks and balances. "The first check is the regulators," she says. "In Israel the regulators are a highly significant factor in managing the bank. There are also internal checks of the board of directors, the accountants, the internal auditors and the management."

The power Leumi's managers wield was evident from reports last week that the bank wants to buy Discount New York. The report came one day after stories appeared that Bank Hapoalim was in talks to buy Bank Discount's New York unit. Hapoalim has been looking at the deal for three months, whereas it took Leumi exactly one day to announce it is joining the race. The announcement was preceded by just one chat between Maor and Raff, who did discuss the matter with some of the bank's directors, but the board did not convene to hold a proper discussion. That even though the deal, if done, might cost Leumi as much as $800 million.

Buying Discount New York would suit Leumi's aims in the United States and in South America, Maor explains. "There is synergy between it and Leumi U.S There is an opportunity here and we'll go for it, if it really is interesting."

At this point, there are no talks on the subject. "We contacted Discount orally and in writing," she says, to which Discount replied only that it received the communiques.

The speed at which Leumi jumped onto the Discount New York bandwagon could attest to pressure Maor feels at the thought of Hapoalim buying it, and reinforcing its status as Israel's No. 1 bank for years to come.

Maor puts it differently. "Six years ago Leumi set itself a strategic goal, to be the most profitable bank in Israel. That goal necessitates significant changes. We can look with satisfaction at out progress, in comparison with ourselves and the system, even though in 2001 and this year growth was cut off. Discount New York is an opportunity that shouldn't be missed."

Savvy, excellent working relations, and Teflon skin

Maor's peers consider her a savvy, talented banker who knows how to exploit Leumi's clout to maintain its status. She has created a good working atmosphere at the bank, and she knows how to operate her officers productively.

Her workers admire her and appreciate her relations with them. "She's amazing," says one of her competitors. She know how to everyone at the bank the feeling that their opinion counts.

Another trait she is said to have is a Teflon exterior. The bank shares manipulation scandal of 1983, and the collapse of the North America Bank, both happened during her regulatory stint as the Supervisor of Banks. But she sailed through unscathed.

During her first four years at Leumi she drew applause from every direction for the deals she led, mainly the successful sale of Africa Israel to Israeli-Russian tycoon Lev Leviev, and of the Migdal insurance company to Italian giant Generali. Each sale generated handsome capital gains for Leumi, and proved that the managers of a state-owned bank can also care about the bottom line.

Galia Maor runs brutal negotiations, Generali chief executive Giovanni Perissinotto recently told TheMarker Magazine. She is the worst thing you could find on the other side of the table, he added: she's fantastic.

During her tenure Leumi closed 30 branches and organized the voluntary early retirement of 1,200 workers, improving its efficiency ratios. But it still lags behind Hapoalim.

From the early 1990s Hapoalim has led Leumi in profitability and return on capital. But Maor kept the gap from widening, even narrowed it here and there, although Hapoalim was privatized in 1997. Leumi ended 2001, a terrible year, with higher returns on capital. Bankers say Leumi could equate its results with Hapoalim if it became more efficient.

Snafus in the spotlight

For all the kudos, Maor's Leumi has made mistakes in the last three years. One problem may be that she grants her underlings too much room to hang themselves.

One is the embezzlement at Leumi's Swiss bank, leading to trouble with the authorities in Switzerland and France over its failure to prevent money-laundering.

Another failure was losing the war over Visa ICC. Another is the bank's deep lending to the flailing telecommunications industry.

The bank also got into fights with customers over various issues, which did its good name no good.

Two incidents inspected by the Supervisor of Banks were handed over to the state prosecution for a ruling on whether the police should become involved.

One was the marketing of Diners' credit cards in 1998 and 1999, where Leumi charged customers $10 to $20 for issuing cards that the customers had not requested.

The other involved a deal where customers of Leumi Visa cards were offered membership in a joint club with El Al, free of charge. But due to a glitch, 3,500 customers were charged $25 for joining.

In both cases the bank returned the money, plus interest, but the Supervisor gave the files to the attorney general anyway. The regulator frowns on cases of the banks helping themselves to customer money. Turning the case over to the prosecution is meant to deter the bank from repeating its error, and to warn other banks, lest the public lose its confidence in the banking establishment.

Another snag arose in the first quarter of 2001, when Leumi reported nominal profit, instead of profit adjusted for inflation, which boosted its figures by NIS 22 million. The bank blamed its accounting mistake on an opinion from the income tax authority but the Supervisor was unimpressed.

Its mortgages subsidiary also made two errors. It miscalculated its capital adequacy ratio, leading it to deviate from the Bank of Israel's limits and forcing the parent bank to provide NIS 1.1 billion backing. And it got the formula for charging variable interest on mortgage loans wrong, leading the central bank to demand that it return NIS 12 million illegally charged to clients. The bank disagrees.

To Leumi's credit, it has fully disclosed its errors in its financial statements and prospectuses. If anything, the bank hints, its problems lie with its disclosures: everybody makes mistakes, it says, but only Leumi admits to them in detail.

"Mistakes happen," Maor says. "The question is how the bank deals with them, and what it can give its customers."

Credit to telecommunications

Another source of trouble could lie with the extent of credit for which Leumi is responsible. It has been the chief lender to the telecoms industry, responsibility for which Maor shares with Ehud Shapira, the bank's credit chief.

It lent extensively to the cable industry, helping to pay exorbitant prices for content, and the shift to digital broadcasting. Leumi's generosity enabled the cable TV companies and the satellite TV broadcaster to wage war, but also led to cable company Tevel's entanglement in massive debt that it cannot handle.

The result is major provisions for doubtful debt by Leumi: NIS 382 million in 2001, compared with NIS 5 million in 2000. The trend is continuing this year.

It also lent openhandedly to startups during the hi-tech boom, in exchange for options and liens on intangible property. But Leumi got in too late: unlike Hapoalim, which could boast some handsome exits, Leumi missed the wave of IPOs and had to set aside tens of millions for doubtful debt.

"We missed and incurred losses," Maor agrees. "But I'm not sorry because the bank has to flow with the market. Remember that we built good relations with many companies, which is a basis for working together."

On credit to the cable companies, she isn't sure mistakes were made. "We thought multichannel TV would be a growing business," she points out. The bank thought the cable TV companies would merge more quickly, for one thing.

Maor's status seems untouched by the series of snafus, many of which were perpetrated others who might have benefited from closer supervision, where other managers might suffer from fierce criticism. Some of the mistakes are the kind that kill a career, another banker pointed out. Not Teflon Maor's, though.

One explanation could be that she handles crises well. Another could lie in her personality: She is not arrogant, she always has good answers, and she keeps a low media profile. It's hard to catch her in a controversial statement. But even more important is the criterion of results, which she passes with flying colors, even though her bank is controlled by the state, while arch-rival Hapoalim is in private hands.

Meanwhile, the watchdogs might decide to clamp limits on both Hapoalim and Leumi, on the grounds that they control too much power in little Israel's business world. Also, the economy is in recession and there's no telling when that will end. Will Maor manage to sustain Leumi's status until February 12, 2007, when her contract ends? We shall see.

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