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Owners vague on plans to shore up Discount's capital
By Sharon Shpurer
Tags: Israel News 

Israel Discount Bank has had the lowest capital adequacy ratio of any Israeli bank for several months now. Both the supervisor of banks and the capital markets have been expecting the Bronfman-Schron group, which has the controlling stake in Discount (26%), to beef up the bank's capital, but to date, no additional shareholder investments have been forthcoming.

Last week, the press spotlighted the group's problems, which are preventing further investments and have sparked confrontations with the Bank of Israel over details of the bank's plans for reaching a capital adequacy ratio of 12% by the end of 2009. The press reports irked the group's members, primarily Matthew Bronfman and Rubin Schron.

On Tuesday, therefore, the group issued an announcement saying that it considers Discount a long-term strategic investment and plans to continue investing in and developing the bank in order to position it as one of Israel's leading banks. As for the bank's capital adequacy ratio, the group is examining "alternative courses of action as part of the long-term economic plan" that it is now drafting, and which will be presented to Supervisor of Banks Roni Hizkiyahu by the end of the month.
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"The partners in the controlling stake are working successfully and in full cooperation concerning the bank," the announcement continued. "The final plan will be acceptable to all the controlling shareholders, and will provide a solution that will enable the bank to continue investing and developing its strategy and promote the appreciation of its shares."

Discount finished the first quarter of 2009 with a capital adequacy ratio of about 10.45% - the lowest in Israel's banking system, and short of the target the bank had set for itself. As a result, Hizkiyahu ordered Discount to provide details of its plan to reach the 12% capital adequacy ratio requirement by December 31.

The bank's low capital adequacy ratio is one of the main reasons many investors are selling their shares. Even after gaining 43% since the beginning of the year, Discount's shares were still trading this week at half the bank's book value, the lowest of any Israeli bank. The other big banks are trading at 63% to 82% of their book value.

The words "rights issue" or "private placement" were nowhere to be found in the group's announcement. This is likely because Bronfman-Schron committed to retaining a 26% stake in the bank, and any new stock issue would dilute their holding. The state, which owns 25% of Discount's shares, is also not interested in a rights issue.

The most logical solution to Bronfman-Schron's problems would thus be to bring another partner into the group of controlling shareholders. But while this avenue has been pursued, there appear to be no candidates in the offing.
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