Bank Leumi (TASE: LUMI) is considering establishing an Internet bank of its own if and when an Internet bank is set up in Israel. Leumi's Internet bank will use the bank's website infrastructure, the Leumi Trade system, and teh Yashir Harishon system, which has operated for 13 years as a bank for all intent and purposes, but without branches.
A group of investors headed by Yehoshua Agassi, formerly CEO of IDI Israel Direct Insurance Ltd, Shlomo Piotrkowsky, a former CEO of First International Bank of Israel, and a third investor, have been trying to set up an Internet bank for a year. They have been in prolonged talks with the Bank of Israel for a license, while simultaneously trying to raise capital from investors to comply with the NIS 500 million shareholders' equity threshold stipulated by the Banking Supervision Department.
After raising the initial capital, the Internet bank's investors will undergo due diligence by the Bank of Israel. This is an essential procedure for obtaining a control permit for a bank, and, based on precedents, is likely to take more than a year. Consequently, the Internet bank cannot begin operating before the first half of 2010.
Bank Leumi believes that 18-24 months will pass between the Internet bank obtaining a license and its actual opening for business, which will give Leumi a window of opportunity to take countermeasures. Bank Leumi believes that, with a small investment, it can establish an Internet bank within the Leumi Group within a few months, and with minor adjustments, it can convert its existing infrastructure to set up a full-service Internet bank.
Both Bank Leumi and Bank Hapoalim (TASE: POLI; LSE:80OA) see Internet banking as a threat that could create competition in the sophisticated households market, but they are not afraid of it. Banking sources believe that precedence shows that a stand-alone Internet bank i.e. - unaffiliated with a regular bank - cannot survive. The cite the example of EGG in the UK, founded in 1998 and which reached three million customers, but was acquired by Citigroup (NYSE: C) after accumulating heavy losses.
Published by Globes [online], Israel business news - www.globes-online.com - on February 5, 2008
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