The Ministry of Finance is considering suspending the privatization process of Bank Leumi (TASE: LUMI). Conditions in the global financial sector, the credit crisis, and the difficulty in finding foreign banks interested in Bank Leumi have shattered the plan of the ministry and the Bank of Israel to sell Bank Leumi to a foreign bank that meets preset criteria.
As a result of these factors, the Ministry of Finance may postpone the privatization of Bank Leumi by at least one year, and to try again in late 2009.
At the Federation of Israeli Chambers of Commerce conference two days ago, Minister of Finance Ronnie Bar-On hinted at this possibility in response to a question about government revenues from privatization. He said, "I can't say if this is the time that I'd like to sell part of Bank Leumi."
The Ministry of Finance says that the timing of the sale of Bank Leumi, an excellent bank, is awful, since foreign banks are busy with their own survival. A ministry official said, "A bank can only be sold once, and Bank Leumi is the last chance for a foreign bank to enter Israel. That's why it's necessary to pick the right time, and timing now is bad."
Ministry of Finance director general Yarom Ariav is responsible for the Bank Leumi privatization.
One reason for the Ministry of Finance's pessimism is the interim report by NM Rothschild & Sons, which is advising the ministry on the privatization. NM Rothschild & Sons presented Bank Leumi to dozens of foreign banks that met the Bank of Israel's criteria, but even the banks that expressed an interest in Bank Leumi said that the timing was wrong.
The Ministry of Finance now agrees with the Bank of Israel and Supervisor of Banks Rony Hizkiyahu that no foreign bank will be found to buy Bank Leumi. Last April, the Bank of Israel predicted that the chances of finding a foreign bank to buy Bank Leumi were negligible. The Bank of Israel said, "In the current crisis, there are few European and definitely no American banks that can invest overseas, and those that can, prefer keeping their money at home."
In the wake of NM Rothschild & Sons' recommendations, the Ministry of Finance and the Bank of Israel have three options regarding Bank Leumi:
- Suspend the privatization until the international financial situation improves.
- Allow non-bank entities to participate in the privatization tender. The problem with this option is that the 10.4% of Bank Leumi that the state is offering for sale is too small to interest an institutional investor.
- Sell the state's shares in Bank Leumi on the Tel Aviv Stock Exchange (TASE) by applying the Marani law. This option would give the largest private shareholder in the bank, Shlomo Eliahu, a strong advantage. The Bank of Israel strongly opposes this option.
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2008
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