The privatisation and sale of any Israeli bank has never been easy. All attempts in the past decade to sell these two banks have failed for various reasons.
Mr Netanyahu has delegated the task of selling the banks to the State Accountant General, Yaron Zelekha, who is also in charge of the government agency for selling state banks.
Mr Zelekha is one of the highest officials in the Ministry of Finance. Several weeks ago he and Mr Netanyahu travelled to the US to meet potential buyers for Discount Bank. However, they did not find any buyers for Leumi Bank.
Mr Zelekha told The Banker: “My first target is to sell Israel's third largest bank, Discount Bank. I am certain to sell it by the end of 2004. A tender for sale of the bank will be published in the coming weeks, as two groups of investors have already submitted statements of intent regarding it.
“About six groups of investors have shown an interest in buying the 57% controlling shares the Israeli government has in Discount. According to the plan, they will have three months to present their proposals for purchasing the bank, after being able to conduct due diligence surveys.”
Mr Zelekha said: “I do not want to repeat mistakes made in the past in selling the banks.” For example, the sale of Discount Bank previously failed because of the lengthy process required by the Bank of Israel to approve the buyers. This time, Mr Zelekha wants to avoid this long process. “I have reached an understanding with the Bank of Israel, which will cut the process of examining the potential buyer's financial status. A first examination of the investors will be done following delivery of a statement of interest in the bank, prior to publication of the tender. This will mean that only qualified investors can participate in the tender.” He emphasised that he wants to keep to the schedule of selling Discount Bank and aims to sell it by the end of 2004.
Mr Zelekha said it was unsurprising Discount was attracting such interest. “It is a middle-size bank. It has undergone extreme efficiency measures and has dealt with the doubtful debts it was carrying for many years. Foreign investors value the bank’s clean platform,” he said. “Another of Discount bank's advantages is its New York subsidiary, which is one of the largest foreign banks in New York with many clients in Central and South America. Many investment groups have shown an interest in buying the New York subsidiary".
The Israeli government turned down these offers, as it has decided to sell Discount as an entire entity. The Israeli Finance Ministry has appointed Merrill Lynch as strategic advisor for the process of selling Discount.
However, with regard to Leumi, Mr Zelekha said that, following a quick survey several weeks ago, he had not found any investors interested in buying the government’s controlling shares. One reasons was that Leumi “is a big bank with many employees and a network of subsidiaries in the US, Britain, Switzerland and France”.
He said: “We’re working on three alternatives for selling the bank by the end of 2005. A decision on the way of selling Leumi Bank will be made by Benjamin Netanyahu in the coming months, after studying the various alternatives.”
One proposal was the distribution of options to all Israeli citizens, which would enable them to purchase Leumi Bank shares at a reduced price. They could also sell their options if they did not want their shares.
Two government committees have proposed this option in the past, and Mr Zelekha says it is now being re-examined by former finance ministry director general David Brodet. It is already known that there are some obstacles in selling the bank on the basis of options and the Finance Ministry is waiting for Mr Brodet's recommendations as to whether they can be overcome.
Mr Zelekha said another alternative for selling the controlling shares of Leumi Bank was by issuing the shares on the Tel Aviv or New York stock exchanges. This will give institutional investors a chance to collect shares and become interested parties in the bank or even to hold controlling shares.
Mr Zelekha is confident he will succeed in overcoming the obstacles in selling Leumi Bank.
The last sale of a government-controlled bank was in September 1997 when the Israeli government sold the country’s largest bank, Poalim, to a private investor consortium, headed by the Carnival Cruise Ship group. The sale netted the Israeli government more than $1bn for 43% of the bank shares.
In October 1983 the government had to rescue five of the biggest banks in Israel after the banks’ shares fell sharply on the stock exchange as the public sold its shares. The government had to pour in $7bn to save the banks from collapse, three of which (Hapoalim, Mizrahi and Igud) were then sold by the government in the 1990s.
