Israel Discount Bank chiefs have been facing a complex dilemma for months. On one hand, they face a burdensome capital adequacy ratio problem that is forcing them to sell assets. On the other hand, the bank’s heavy losses demands they hold onto profit-generating assets.
The dilemma is made worse when the bank chiefs have to decide what assets to sell. When it is a profitable like Israel Discount Bank of New York, they know it will generate a handsome profit, but will also dry up the steady flow dollars from its general manager Arie Sheer.
In contrast, the sale of an asset like The First International Bank of Israel or Discount Mortgage Bank should not be painful for the group’s quarterly reports, but they would not make enough money for the sale to be worthwhile.
Therefore, it was not easy for Discount Bank chairman Arie Mientkavich to declare, “There are no sacred cows, and any asset can be sold.” He was particularly sensitive to the group’s cash cow, Israel Discount Bank of New York, and began talks with New York underwriters to privatize the bank.
But it turns out that when a prime asset like Israel Discount Bank of New York is offered for sale, there is no need to go the world’s financial capital. Buyers can be found across the street in Tel Aviv. Bank Hapoalim has long planned to expand its operations in the West. If it buys Israel Discount Bank of New York, it gets a real position in the state where its subsidiary Signature Bank already has $1 billion of deposits and nine branches in its first year of business.
Bank Hapoalim could become not only Israel’s largest bank, but also a major New York Bank. It is believed that regulatory hurdles thrown up by the Bank of Israel and Antitrust Authority, which fear over-centralization and seek to promote competition, will pass over Bank Hapoalim, because it is expanding its overseas, not Israeli, business.
Published by Globes [online] - www.globes.co.il - on July 8, 2002