Hapoalim to sell Swiss, Latin American banks

Arik Pinto

Stricter regulation and the weakening of confidentiality have made private banking less worthwhile.

Sources inform "Globes" that Bank Hapoalim (TASE: POLI) wants to sell its overseas private banking business. Its leading subsidiary in this category is in Switzerland, and it also has business in South America (Hapoalim Latin America) and a branch in Miami. Bank Hapoalim is considering the sale of all three of these units as a single entity in order to maximize the price it will get for them (economies of scale are significant in private banking), but is not ruling out a separate sale of the assets.

Bank Hapoalim did not respond to the report.

Julius Baer Bank, which is expanding its private banking business and acquired similar business two years ago from Bank Leumi (TASE: LUMI), is reputed to be one of the concerns interested in the acquisition. Julius Baer said, "As a matter of policy, the bank does not respond to rumors."

Bank Hapoalim is using the services of Amir Aviv, the former head of its international division, in the sale. Aviv, who left the bank over the past year to join the GCP fund in the US, is assisting Dan Koller, who replaced him at the bank.

As of the end of 2015, Bank Hapoalim Switzerland had equity of $423 million, and it appears that this will be the floor price in the deal. When Bank Leumi sold Leumi Switzerland to Julius Baer, the price was close to the sold bank's equity. Bank Hapoalim plans to ask a higher price; sources close to the deal say that the Swiss subsidiary's customer portfolio is cleaner than that the one Bank Leumi sold to Julius Baer with respect to money involved in tax evasion and money laundering.

Bank Hapoalim is currently being investigated by US authorities on suspicion of abetting tax evasion by its US customers. This investigation also involves customers of Bank Hapoalim Switzerland. Bank Hapoalim has already made a $500 million provision in its accounts for this investigation, which is likely to be concluded next year. The investigation is not expected to prevent this deal; Bank Leumi sold its business in Switzerland before signing a settlement with the US authorities. The investigation is likely to complicate the deal in two areas, however: the price and the extent of the indemnification that the buyer will receive for the impact of the investigation on the customers and their assets.

Bank Hapoalim Switzerland has private banking business in three branches: Zurich and Geneva in Switzerland and a branch in Luxembourg. The bank also has investment consultancies in Hong Kong and offices in Israel and Russia.

Bank Hapoalim Switzerland's business is fairly stagnant. The bank's 2015 profit was 11 million Swiss francs, down 50%, compared with 2014. The drop in profit resulted from a fall in fees and higher operating and tax expenses, despite a rise in revenue caused by a positive revaluation of derivatives. In any case, the contribution of Bank Hapoalim's business in Switzerland to its NIS 3 billion overall profit is negligible.

Bank Hapoalim Switzerland is not the only Bank Hapoalim subsidiary on the auction block; its private banking and credit business in Latin America, where it has two branches in Uruguay, is also up for sale. There is also a branch in Miami dealing in private banking, but most of its customers are from Latin America.

Private banking is on the wane globally. Following regulatory changes in banking, including private banking, especially in Switzerland, the banks' expenses incurred in this activity have grown significantly, so that economies of scale have become important. On the other hand, the advantages of banking confidentiality in Switzerland are dwindling, so foreign banks have no substantial added value there to offer customers. In view of this situation, concerns are abandoning their business in Switzerland, including Israeli concerns.

Bank Hapoalim is not planning to completely abandon international activity. It wants to focus on growth in the US, especially in commercial credit. Bank Hapoalim has business in the US, and it would like to expand it with a substantial acquisition of a local bank. It appears, however, that such an acquisition will take place only after the investigation in the US is completed, and after the bank sells credit card unit Isracard, which it will be required to do under government banking reforms, thereby freeing up capital and resources for such a deal.

Bank Hapoalim said in response, "The bank has been examining for some time its deployment in international private banking in order to align it with the business environment. It should be clarified that Bank Hapoalim Switzerland is a strategic asset and its sale is not being considered."

Published by Globes [online], Israel business news - www.globes-online.com - on November 24, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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