The image couldn't have been more symbolic. On Sunday evening, ex-minister Ra'anan Cohen, today the chairman of the
Industrial Development Bank (TASE: INDD.GG) , presided over a table laden with hoummous, meze and spitted meats at the Saeed restaurant in Or Yehuda. Beside him sat Eitan Eldar and Roy Gill, two of Israel's most highly leveraged businessmen and major borrowers from the crumbling bank. There too was Amnon Barzani, who had just closed the deal to buy control over Yardan Investment (TASE: YRDN) from Eldar and Gill. The deal relieved Eldar and Gill of part of the tremendous financial burden breaking their backs over the last year, after gambling a quarter of a billion shekels to buy a 24% stake in Israel Land Development Corporation (TASE: ILCO ) . They bought the shares through Yarden. By selling the company to the Barzanis, the duo "cut" their loss, and reduced their exposure to the banks. While Cohen and company celebrated the deal, top treasury officials were burning the midnight oil together with the leaders of banks Bank Hapoalim (TASE: POLI ) and Bank Leumi (TASE: LUMI ) . Finally, after grueling talks, they agreed to close down the battered bank, and that the two big banks would buy its credit portfolio. The decision to pull the plug on Industrial Development Bank proves there are no free lunches in the business world, not even at Saeed's. Three years of uninhibited lending to political cronies finally brought the bank to its knees. The threat to its stability has forced the state to take steps that, ultimately, mean the bank's demise. When we called Eitan Eldar by mobile phone Sunday night, at the height of the revelry, and asked when Ra'anan Cohen was doing there with him and with the buyer of Yarden, Eldar hastened to clarify that Cohen had no connection with the deal. Complete coincidence. But the moment the conversation ended, Cohen hurried off, perhaps just to make sure no misunderstandings about any associations could arise. "The plates of hoummous sat there abandoned on the table," said an eyewitness. Cohen is indeed not associated with the loans Eldar and Gill took from Israel's banks, including from the Industrial Development Bank. Cohen, poor guy, was Industrial Development Bank's chairman for all of 11 days. But political appointments like his, and business practices of the kind that lead to leverages like those obtained by Eldar and Gill, are exactly what reduced Israel's banks to their current situation. Gill and Eldar are honoring their debts to the banks and making good on their interest payments. But what the deal, and the meal at Saeed's, epitomizes is not their business failure, and failure it was they've lost NIS 90 million on it. It epitomizes the shortcoming of the banks, which lent them and people like them billions in recent years. Industrial Development Bank and another Hapoalim holding, Continental Bank, excelled at extending credit to companies that couldn't get it elsewhere. But, for the sake of accuracy, we must admit that the very events that led to Industrial Development Bank's collapse happened at most of Israel's other commercial banks too. The difference between the doomed Industrial Development Bank and, First International Bank of Israel (TASE: FIBI) which shifted to a loss, and banks Hapoalim and Leumi, which are still making hundreds of millions each quarter, is that the small banks don't have padding from competition-free niches. If Hapoalim and Leumi didn't have their credit-card operations, their massive provident funds, their branches abroad with huge deposits by Jews, and a lot of other retail business their financial statements wouldn't look much better than Industrial Development Bank's, or FIBI's. The blows to Israel's banking establishment in the last couple of months, led by the collapse of the Peled-Givony group, reinforce the feeling that Israeli banks went completely berserk in the last five years, chasing madly after the big-name businessmen and happily extending enormous loans at interest rates that did not justify the risk. Who will pay the bill? At the big banks, the answer is clear: They will raise their commissions charged to retail customers while continuing to rake in profits from non-competitive spheres, while the Watchdog- the Bank of Israel's Supervisor of Banks will not so much as peep, given that his chief fear is destabilization of the banking sector. At the small banks, the ones stuck with the bill will be the shareholders. In the case of Industrial Development Bank, that means the taxpayers, who will now have to shoulder the cost of dismantling the bank at a huge loss. And what about the directors? Just two months ago TheMarker published a column on the Industrial Development Bank directors who voted to appoint Ra'anan Cohen as chairman, despite his utter dearth of banking experience. The bank's directors all knew perfectly well that Cohen was not appropriate, that the bank's condition was terrible, and that what it really needed was a top-ranking banker. But they were concerned for their seats and obediently raised their hands. And now this may be their punishment within a few months, the board will be dismantled and they'll have to find some other occupation. Anyway, we may assume that their decision to place Ra'anan Cohen at their head, instead of an experienced banker, may have facilitated the state's decision to liquidate the bank, without even consulting with its directors, or with its chairman who was spending that evening eating hoummous at Saeed's in Or Yehuda.