Brodet: Recommendations Well-Balanced and Practicable and Need Not Delay Bank Hapoalim Sale

"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:

  • It is recommended that a bank not be permitted to control a non-bank corporation, either alone or with others, be the rate of its holdings in the corporation what it may. The legal provision enabling banks to continue to control non-bank corporations even after 1996, if they acquired such control prior to 1989, will be revoked commencing December 31, 1996.

  • By the end of 1996, the banks will be down to a maximum holding rate of 25% of the means of the control in each non-bank corporation.

    It is recommended that, commencing December 31, 1998, such rate of holding be reduced to 20%.

    It was further recommended that:

  • A bank shall not be appointed and shall not have the right to appoint, either directly or indirectly, to the board of directors of the non-bank corporation, any number of directors in excess of its direct proportionate share in the capital of the non-bank corporation; in other words, it will not, in any event, be entitled to appoint more than 20% of the members of the board of directors.

    The ban on joint control with others is also to include a prohibition against the bank's holding right of veto as to the business decisions of the non-bank corporation.

  • 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.


    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)

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