Taking part this time in the State of Israel Properties tender for the sale of 1.5% of the share capital of Bank Leumi, was a new consortium, composed of investment banks IBI and Poalim Capital Markets. The consortium entered the bidding in the name of ultimate investors, seeking to acquire Bank Leumi shares in that way.
"Globes" learned, however, that one of the two consortium members, Poalim Capital Markets, sought to participate in the bidding in a different capacity, and was prevented from doing so by the Examiner of Banks.
Bank Hapoalim subsidiary IBI sought to participate in the tender as a market maker, meaning that it would purchase the shares for its nostro account, and only then find ultimate purchasers for the shares, rather than bid, from the outset, on behalf of given ultimate purchasers. In this way, the company could have enjoyed greater flexibility in participating in the tender. There would be no ultimate customers to set pre-conditions, and IBI could have purchased shares at its own discretion, based on commercial considerations, and only then proceeded to distribute them.
This was exactly what winning consortium Lehman Brothers did: Lehman purchased the shares for its nostro account, and promptly proceeded to distribute them to ultimate customers overseas.
As far as is known, this was the first time an Israeli body sought to act as a market maker in a large, off-floor stock tender. Bank of Israel, however, prevented Poalim Capital Markets from carrying out its intention. Banks are not permitted, by law, to invest in the shares of other banks.
Poalim Capital Markets wished it to be clearly understood that its intended purchase would have been strictly market-maker style. That is to say, it only intended to hold the shares for an interim period, until they could be redistributed to ultimate customers. Therefore, the risk involved when one bank acts in the shares of another bank would not have arisen. Bank of Israel, however, refused to accept this explanation.
Published by Israel's Business Arena March 10, 1999