Export Investment Corp., which controls the Bank of Jerusalem with an 86.1% share, today announced it had been in preliminary contacts with Bank Leumi (TASE:LUMI) for a possible acquisition of the Bank of Jerusalem, or its merger with Bank Leumi. Following the announcement, the Export Investment and Bank of Jerusalem shares posted gains of 7.5-8.5% in morning trading on the Tel Aviv Stock Exchange.
The announcement also said that the preliminary talks had not led to the opening of full negotiations at this stage. Export Investment acting chairman Gideon Shoval, the son of controlling shareholder Zalman Shoval, conducted the talks. The Bank of Jerusalem has a NIS 250 million market value.
The Bank of Jerusalem is a medium-sized bank. Headed by managing director David Baruch and chairman of the board David Blumberg, the bank achieved a relatively high 9% return on capital in 2002, compared with 7.8% in 2001.
Despite its relatively small size, the Bank of Jerusalem is considered a high-quality and stable bank, due mostly to its niche activities, which include specialties in real estate, the capital market, and foreign residents.
The major banks, particularly Bank Leumi and Bank Hapoalim (LSE:BKHD; TASE:POLI), have recently shown increasing interest in acquiring small and medium-sized banks. The major banks have always wanted to acquire these banks, but the Bank of Israel has vetoed the acquisitions, over concern about over-concentration in banking, where the two biggest banks control two thirds of the market.
After the discovery of the huge embezzlement at the Trade Bank, the Bank of Israel changed its policy, because of concern about the small banks. The Bank of Israel approached Bank Hapoalim, which had previously asked for permission to acquire the Maritime Bank of Israel, and had been turned down. The Bank of Israel announced last year that it would authorize Bank Hapoalim to acquire the Maritime Bank, and the merger took place a few weeks ago.
The capital market believes the major banks would like grow by acquiring and absorbing additional small banks. The big banks, particularly Bank Hapoalim, are trying to acquire and merge banks that are part of their own groups, but in which they do not have full ownership. Some examples are Bank Otsar Hahayal; Mishkan Hapoalim Mortgage Bank, a candidate to be merged into Bank Hapoalim, and for which an offer to purchase was recently made; the Israel Continental Bank; and Bank Massad.
Published by Globes [online] - www.globes.co.il - on April 3, 2003