"On weighting relevant interests, including the need to reduce
centralism in the economy, to narrow the scope of conflicts of interest
between the various activities undertaken by the banks and to maintain
bank stability as well as the benefit accruing to the economy, the
bank and the non-bank corporation from the involvement of the banks" -
on the basis of all these, the Brodet commission examining the level
of centralism in the economy reached its conclusions on the matter of
the banks' control of non-bank corporations. In essence, the
commission's recommendations are as follows:
Aggregate volume of bank's holding in non-bank corporations:
In view of the need to reduce centralism in the Israeli economy
and insofar as possible to contain the negative effect exerted by
extensive bank holdings in non-bank corporations; and bearing in mind
that under the existing law, total means of control permitted to be
held by a bank in non-bank corporations is not to exceed 25% of the
shareholders' equity of the bank, as defined in the Rules:
A. It is recommended that total bank holdings in non-bank
corporations (in which the bank holds up to 20% of the means of control)
shall not exceed 15% of the bank's shareholders' equity.
B. In addition to the aforesaid, it is recommended that a principle
be established whereby a bank will be able to hold up to an additional
5% of its own shareholders' equity (over and above the aforesaid 15%) in
non-bank holdings, the rate of which shall not exceed 5% in any one
corporation, and without such holding conferring the right to appoint a
director or any other office-holder in the corporation.
C. Holdings shall be scaled down to the aforesaid maximum rates
over such period of time as to facilitate appropriate redeployment:
By the end of 1998 - to a maximum rate of 20% as prescribed by sub-
paragraph A;
By the end of 1999 - to maximum rates of 18% as per sub-paragraph A,
and 2% as per sub-paragraph B;
By the end of 2000 - to maximum rates of 16% as per sub-paragraph A
and 4% as per sub-paragraph B;
By the end of 2001 - to the intended maximum rates of 15% as per
sub-paragraph A and 5% as per sub-paragraph B.
Restrictions as to bank holdings in a major conglomerate:-
In view of the fact that misgivings relating to the economy as a
whole are occasioned where a bank holds a position of influence over
more than one concern of significant size in an economy:
A. It is recommended that Bank Hapoalim be required to divest itself
of its entire holdings in one of the two major concerns, Koor or Clal,
by December 31, 1998. The holdings shall not be sold to one of the major
conglomerates in the economy (such as the Bank Hapoalim, Bank Leumi, IDB
or Israel Corporation groups).
The possibility shall be explored of separating the Koor concern
from the bank group even prior to the sale of the controlling nucleus
in the bank, insofar as this does not hinder the sale of control.
B. The bank shall be able to hold up to 20% of the means of control
in one major conglomerate only. In this context, a major non-bank
conglomerate is a multi-industry holdings corporation, the volume of
whose capital exceeds NIS 1.0 billion in fixed 1995 prices.
Consideration
A. Consideration from the disposal of non-bank holdings, made
with a view to reducing the volume of non-bank holdings from 25% of
the bank's shareholders' equity to 20% thereof, shall be distributed
in the form of a dividend.
B. In any event, consideration obtained by Bank Hapoalim from the
sale of all its holdings in either Koor or Clal, shall be distributed
as a dividend (forming part of the dividend referred to sub-paragraph
A)