Israel Discount Bank (TASE: DSCT) has closed its representative office in Paris, and is scaling back its activity in Zurich to the status of representative office. IDB (Swiss) Bank Ltd. will continue serving customers out of its head office in Geneva.
Just six years ago, Discount Bank decided to expand its Swiss operations, through the acquisition of Geneva-based Arzi Bank AG for CHF 40.5 million. Now it is reducing its Swiss operations.
The reduction in overseas operations is part of Discount Bank's streamlining measures and efforts of CEO Reuven Spiegel to improve the bank's capital ratio. It has a poor operating efficiency ratio and is working hard to meet the Bank of Israel's tier-1 capital adequacy target of 9% by the end of 2014. To improve the ratio, Discount Bank's management has taken various measures, including the closing of the Paris office and reducing its Swiss operations.
Discount Bank's biggest foreign unit is Israel Discount Bank of New York, which operates in the US and Latin America, and accounts for a large part of the bank's total business. Discount Bank also has a large office in London, which mainly provides foreign trade credit. The Paris and Zurich offices mostly handled private banking.
Discount Bank's foreign operations generated a profit of just NIS 41 million in the first quarter of 2013, for a return on capital of only 2.1%.
In the past, Israeli banks sought opportunities for international expansion, but given the low profit margins of, and even losses by, these operations, the banks are scaling back their overseas business. Another reason for the reduction is strict regulation in some countries, especially the US. The different regulations from Israel, heavy penalties, and the remote management by the home bank have entangled some Israeli banks in investigations by the local authorities.
Discount Bank is not the only Israeli bank reducing its foreign operations. Bank Leumi (TASE: LUMI) has decided to close its office in Panama, First International Bank of Israel (TASE: FTIN) closed its branch in London in 2012; and Bank Hapoalim (TASE: POLI) decided last year to close its London branch a few months after closing its office in Singapore and moving the operations to Hong Kong and China.
Published by Globes [online], Israel business news - www.globes-online.com - on June 11, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013