Introduction
In a significant move within the financial sector, Discount Bank, led by CEO Avi Levi, has announced its decision to sell a 72% stake in Cal (Israeli credit card company) to Union Investments, owned by billionaire George Kores and the Harel Insurance Group. The deal, valued at approximately 3.73 billion shekels, may potentially escalate to 4 billion shekels depending on Cal’s future performance.
The Competitive Bidding Process
The acquisition offer from Union and Harel outshone a competing bid from businessman Moti Ben Moshe, which reportedly exceeded 4 billion shekels. However, the specifics of Ben Moshe’s proposal remained undisclosed. Sources close to Discount Bank emphasized that the financial sum was not the sole factor in assessing the bids; regulatory certainty played a critical role. The bank sought to predict the likelihood of receiving necessary approvals from various regulatory bodies, including the Competition Authority and the Bank of Israel.
Strategic Timing Amid Challenges
Discount Bank expressed satisfaction in finalizing the sale just before the Jewish New Year, aligning with their ambitious goal set earlier this year. The timing is crucial as it alleviates uncertainty during a significant period for the Israeli economy, particularly after a week marked by notable stock market declines.
Financial Implications for Discount Bank
With the completion of this deal, Discount Bank anticipates receiving between 2.7 billion and 2.87 billion shekels, contingent upon Cal meeting specified performance targets. This sale is mandated under regulations designed to enhance competition and reduce concentration in the Israeli banking sector. Previously, similar divestitures occurred, such as Bank Hapoalim’s separation from Isracard in 2019.
The Timeline for Finalization
The adoption of this deal is expected to take between three to six months as it depends on regulatory approvals and other factors. Although the Israeli Banking Corporation’s decision on whether to sell its remaining 28% stake in Cal remains unconfirmed, not moving forward could complicate matters for prospective owners wishing to acquire licenses for the “lean bank” model.
Dividend Prospects and Regulatory Constraints
The sale could open the door for a significant dividend for Discount Bank, already sitting on excess capital. However, current regulations limit the bank’s ability to expand its operations in certain areas it may prefer. Therefore, while the prospect of a sizable dividend exists, alternative financial strategies may also be pursued.
Uncertainty Around International Bank’s Decision
The decision from the Israeli Banking Corporation remains pending, with a 60-day window to either join the acquisition or retain ownership. If they choose the latter, it might hamper new owners from securing necessary licenses or approvals.
Leadership and Future Direction of Cal
The future leadership at Cal is shrouded in speculation. Currently, CEO Levi Levi has overseen operations since June 2018. Considerations are being made to appoint a prominent figure from the financial sector; names like former Bank Hapoalim CEO Dov Kotler have surfaced as potential candidates.
Regulatory Concerns and Market Competition
Despite efforts by Discount Bank to streamline the approval process, gaining the necessary nods from the Bank of Israel can be lengthy. Past experiences indicate that significant delays could occur, and the Competition Authority has previously vetoed bids from Harel, raising questions about the future approval process.
Conclusion
As the transaction unfolds, numerous hurdles could arise. While Discount Bank took a significant step by securing a buyer for its stake in Cal, the outcome remains contingent on various external factors and regulatory approvals, leaving the future landscape of the Israeli credit market uncertain.
