Bank Leumi private banking in Geneva, Switzerland.
Bank Leumi private banking in Geneva, Switzerland. Photo by Bloomberg
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Bank Leumi is close to an agreement to sell off all of its operations in Switzerland and Luxembourg, including its wholly-owned subsidiaries Leumi Private Bank Switzerland and Leumi Luxembourg, to the Swiss bank Julius Baer.

The move, which effectively means that Israel’s second-largest bank is abandoning its international private banking operations in Europe, follows troubles with the U.S. tax authorities over these activities. The negotiations with Julius Baer are in their final stretch and are expected to be signed within a few days.

The sale of Leumi Switzerland, which manages some $6 billion in client assets, will mark a major change in Leumi’s strategy. Only a few years ago, under then-CEO Galia Maor, the bank expanded its operations in Switzerland. It paid 680 million shekels ($198.3 million at current exchange rates) for Banque Safdie, which turned out to be a big mistake.

Leumi Switzerland had equity capital of 241 million Swiss francs ($268.3 million) at the end of 2013, but the business will probably be sold at the net book value of the clients’ assets plus 10 million francs. As a result, Leumi is not expected to show a significant profit on the sale and might even take a small loss, since there is no certainty that all its clients will stay on after the switch.

Leumi is also expected to have to write off a number of items as it closes its European operations, including 25 million shekels in goodwill for its Swiss operations.

The transfer of clients to Julius Baer is expected to take about 18 months, after which Leumi plans to liquidate Leumi Switzerland and distribute the remaining cash it holds. About 50 employees who deal directly with clients are expected to be hired by Julius Baer, while 100 back-office employees are expected to lose their jobs.

Leumi Luxembourg manages client assets of $1.3 billion and has an estimated $59 million in equity capital.

Leumi decided to sell off its European private banking operations after it was forced to change its business strategy in Switzerland and stop accepting deposits from clients who had not reported the source of their funds — in other words, money on which it can be assumed the customers did not pay tax in their home country. Leumi has been under investigation for several years by U.S. authorities on suspicions of aiding clients in evading U.S. taxes. Five weeks ago the bank reported it expects to pay fines of some 950 million shekels to close the investigations without any indictments. Leumi said it expected to pay an additional 200 million shekels in lawyers’ and accountants’ fees.

After closing its European private banking operations, Leumi’s only international private banking activities will be in the United States, where it mostly manages accounts for South American clients. Two other Israeli banks, Bank Hapoalim and Mizrahi Tefahot Bank, are also under investigation in the United States.