Russak-Aminoach at Bank Leumi Helm in Battle With Hapoalim

Rakefet Russak-Aminoach stepped down as chief executive officer of one of Israel’s leading accounting firms in 2003 to pursue her long-time dream of succeeding her mentor, Galia Maor, in the top job at Bank Leumi Le-Israel Ltd.

“She took a risk,” Yossi Rosen, the chairman of Oil Refineries Ltd. (ORL) who has been a client of Russak-Aminoach’s for both accounting and banking services, said in an April 29 telephone interview. “She believed in her abilities and she was fulfilling a dream,” even though she was given no assurances she’d get the job, he said.

Maor is a hard act to follow. She tripled Tel Aviv-based Leumi’s balance sheet and produced a total return of about 490 percent -- 33 percentage points more than Israel’s TA-100 Index -- for shareholders since becoming CEO 17 years ago.

Russak-Aminoach, who succeeded her on May 1, takes over as competition is increasing and analysts forecast earnings are falling for Israel’s largest bank by assets. The stock is down 6.6 percent this year compared with a 5 percent advance in the nation’s second-biggest lender, Bank Hapoalim Ltd. (POLI), and a 2.8 percent retreat in the benchmark Tel Aviv 25 Index.

Joseph Wolf, an analyst at Barclays Plc (BARC) in Tel Aviv, said on May 15 that his preliminary estimate is for Leumi to report second-quarter net income of 260 million shekels ($67 million), or a drop of 54 percent from 563 million shekels in the year- earlier period. Wolf attributed the estimate to higher loan-loss provisions compared with the “unusually low” figures in the second quarter of 2011, when the bank set aside 73 million shekels versus 196 million shekels in the year-earlier quarter.

Photographer: Ron Kedmi/Bank Leumi Le-Israel Ltd. via Bloomberg

Bank Leumi Le-Israel Ltd. Chief Executive Officer Rakefet Russak-Aminoac. Close

Bank Leumi Le-Israel Ltd. Chief Executive Officer Rakefet Russak-Aminoac.

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Photographer: Ron Kedmi/Bank Leumi Le-Israel Ltd. via Bloomberg

Bank Leumi Le-Israel Ltd. Chief Executive Officer Rakefet Russak-Aminoac.

Since Russak-Aminoach replaced Maor, Leumi’s shares have fallen 14 percent, more than Tel Aviv-based Hapoalim’s 7.3 percent retreat and the TA-25’s 9.4 percent decrease.

Second Daughter

Russak-Aminoach declined to be interviewed, according to an e-mailed response from Bank Leumi on April 23.

The second daughter of three of an accountant and a teacher, Russak-Aminoach had three university degrees by the age of 28, in economics and accounting, business administration and law. She graduated with honors from Tel Aviv University, where she met her future husband Reem Aminoach, now the director of the budget department at the Ministry of Defense, while attending classes.

“She used to sit in my ‘Introduction to Economics’ class together with her future husband Reem,” Professor Manuel Trajtenberg said in a telephone interview on April 16. “I noticed her because of the quality of her questions, her drive, and her intensive interest.”

Similar Haircuts

Even then, she had a goal. “She was at a crossroads between studying for a doctorate or turning to the business world,” Erez Vigodman, chief executive officer of Makhteshim- Agan Industries Ltd., an agrochemicals company, said in an interview on Israel’s Channel 2 news on Feb. 17. “I said: Let’s go 15-20 years forward. What do you want to be when you grow up? She thought for a while and said: Galia Maor.”

Russak-Aminoach, 46, and Maor, 69, have similar haircuts -- short, tucked behind the ears with a few strands falling over their foreheads -- and favor the same cut of dark pant-suits with a blouse peeking from under a buttoned jacket. They even prefer the same shade of dark-red nail polish.

“Very few chief executive officers have been able to identify, train and groom their replacement as Maor did with Russak-Aminoach,” Dan Gillerman, chairman of Markstone Capital Group LLC, with $800 million under management, said in an interview in Tel Aviv on April 18.

Accounting Job

“Galia had the foresight and graciousness to pave the way for her successor and fight for her to get that position,” said Gillerman, a former director at Bank Leumi (LUMI) and former Israeli ambassador to the United Nations, who brought Maor to the bank in 1991.

After teaching business administration to officers during her army service, Russak-Aminoach became Maor’s assistant for two years, before leaving in 1995 to become a partner and then lead the accounting firm KPMG Somekh Chaikin. She returned to Leumi in 2004 to head its corporate division, becoming deputy CEO in July.

Russak-Aminoach set up a unit to do independent credit underwriting, separate from the corporate business unit. It provided an independent verification of a candidate before a loan was approved, the first of its kind in Israel.

During her tenure, loan-loss provisions declined to 734 million shekels at the end of 2011, from 1.51 billion shekels, according to data compiled by Bloomberg. Provisions at Hapoalim totaled 1.2 billion shekels at the end of last year.

’Highest Quality’

“The credit portfolio that she has managed is considered the highest quality in the market, with the least bad debt,” Adi Scop, a banking analyst and the head of sales at I.B.I. - Israel Brokerage & Investments Ltd., said by phone on April 2.

Russak-Aminoach also diversified the bank’s lending, moving away from large corporate clients toward middle-market customers, and shunned leveraged buyouts, all of which helped minimize losses through the 2008 global financial crisis, Terence Klingman, a senior analyst at Psagot Investment House Ltd., said in a phone interview on April 29.

Leumi was less exposed than Hapoalim when Africa Israel Investments Ltd. (AFIL), the real estate holding company controlled by Lev Leviev, said it had to restructure debt in August 2009, Klingman said. Leviev said the company was having trouble refinancing long-term debt after a sharp decline in the value of real estate investments in the U.S. and Russia.

Hapoalim Profits

Earnings at Leumi and Hapoalim plunged in 2008 as the collapse of Lehman Brothers’ Holdings Inc. led to the worst financial crisis since the Great Depression and writedowns at Israel’s two largest banks. Hapoalim was the worst-hit by losses from subprime holdings, posting an 895 million-shekel loss for the year. Leumi’s net income in 2008 was 92 million shekels.

Hapoalim, founded in 1921 as a laborers bank and today controlled by billionaire Shari Arison, is beating Leumi by some measures. It reported net income of 2.75 billion shekels last year, more than the 1.89 billion shekels for Leumi. Hapoalim’s return on equity was 12 percent compared with 8 percent at Leumi.

Leumi and Hapoalim each hold a 31 percent stake of consumer and commercial loans in Israel, according to I.B.I.’s Scop. Mizrahi Tefahot Bank Ltd. (MZTF), located in Ramat Gan, Israel, has 15 percent, he said. Mizrahi Tefahot’s stock is up 5.4 percent this year.

“We are beginning to reap the benefits of our multiyear strategic plan,” Ofra Preuss, a Hapoalim spokeswoman, said by phone on May 10. “Hapoalim has surpassed Leumi in nearly every parameter and is once again Israel’s leading bank.”

Leumi’s Results

Leumi’s assets were 365.9 billion shekels at the end of 2011, up from 112.7 billion shekels at the end of 1995, while the bank’s loan book rose to 246.2 billion shekels from 71.4 billion shekels and profit more than quadrupled from 410 million shekels in the period, according to data compiled by Bloomberg. That helped more than double Leumi’s market value to 16.1 billion shekels from 6.1 billion shekels.

Hapoalim’s assets were 356.7 billion shekels at the end of 2011, up from 135.8 billion shekels at the end of 1995, while the bank’s loan book rose to 251.8 billion shekels from 105.5 billion shekels, according to data compiled by Bloomberg. Hapoalim’s market value at the end of 2011 was 16.4 billion shekels up from 6.3 billion shekels in 1996, when the shares were listed.

Leumi, whose board approved a plan on Feb. 12 to cut costs by as much as 400 million shekels a year to improve profitability, is scheduled to report first-quarter results on May 31. Barclay’s Wolf estimates net income of 335 million shekels for the quarter and net interest income of 1.8 billion shekels. In the first quarter of 2011 net income was 577 million shekels and net interest income 1.9 billion shekels.

Core Capital

Russak-Aminoach takes over amid a global economic slowdown and as Israel increases capital adequacy requirements.

The Bank of Israel forecasts economic growth will slow to 3.1 percent this year from 4.8 percent in 2011. Leumi is also responding to a requirement for higher core Tier 1 capital, the ratio of the bank’s core equity capital to its total risk- weighted assets, which regulators use to measure financial health.

The central bank published a draft guideline on March 14 that sets a minimum core Tier 1 ratio of 10 percent for the two largest banks to be implemented by Jan. 1, 2017. Leumi’s was 8.1 percent at the end of 2011, compared with 7.9 percent at Hapoalim, according to data provided by the banks.

’Hard Balance’

“The desire of the bank to grow and share dividends with shareholders but also increase core capital is a hard balance to strike in a period of economic uncertainty,” Barclay’s Wolf said in an April 2 interview.

Banks typically increase their capital through retained earnings, by refraining from distributing dividends, and by raising money in the capital markets or selling assets to reduce risk weighted assets.

“Leumi has a winning card up its sleeve,” Scop said. “In order to meet the new capital adequacy ratio swiftly, it can sell its 18 percent stake in Israel Corp. (ILCO) thus unlocking huge value and regulatory capital at a stroke.” Israel Corp., based in Tel Aviv, is a holding company with investments in the shipping, oil refining and chemical industries.

Final Conference

At Maor’s final press conference on March 29, Russak- Aminoach, making her first appearance as the next CEO, sat at the far end of the table, leaving her mentor center stage one last time.

“This is the 17th time I am standing before you, and I will not deny, it is more emotional for me than ever,” Maor said, with the hint of a tremble in her voice. “I am sorry I will not be able to complete the work I have started at the bank,” Maor added at the end of the presentation.

Russak-Aminoach received offers from other firms while at Leumi and turned them down, Rosen of Oil Refineries said in a phone interview on April 9. If she had not pursued a career with Leumi, she would be the chief executive at another company, he said.

“People generally have no patience and give up,” Rosen said. “She is in for the long run.”

To contact the reporter on this story: Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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