Migdal Insurance is negotiating to buy 20 percent of Leumi Card, only a day after it was revealed that it had lost in the race with rival insurance firm The Israel Phoenix Assurance Company to buy 25 percent of Bank Hapoalim's subsidiary Isracard.

However, it is far from clear that any of the deals will come through. The trustbuster looks at the union of the insurers and credit card companies with a sour eye.

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Bank Leumi said yesterday that Migdal is in talks to buy 10 percent of Leumi Card according to a company valuation of NIS 1.5 billion. The deal would include an option for Migdal to buy 10 percent more of the credit card company at a price yet to be determined. This gives Leumi Card a price to earnings ratio of 15-17.

Only half a year ago businessman Eliezer Fishman was forced to sell 24 percent of Visa Cal to the Israel Discount Bank, at an equivalent value. The Isracard deal values the company at NIS 2.55 billion, with price to earnings ratio of 18.

Leumi Card is the latest credit card company, set up by Bank Leumi in 2000 after losing Visa Cal to Discount. It has issued an estimated 1.2 million cards, and is growing at about 30 percent per year - but it still is less profitable than its competitors.

In addition, Leumi Card is not expected to go public in the near future, as opposed to both its competitors. It is assumed that Leumi will wait until the sale of control of the bank is completed before taking such a step.

The link between Leumi and Migdal is much more logical than one between Migdal and Hapoalim. Leumi and Migdal have a long history of cooperation, with Leumi owning control of the insurance company, before the state forced it to sell control to Italian insurance giant Generali and reduce its holdings to only 20 percent. In 2006 Leumi was forced to sell another 10 percent of Migdal, and it may sell off the remainder in the coming year.

The parties in question hope to take advantage of a loophole in the law. Banks are forbidden to own insurance companies and vice versa, but the legislator did not forbid insurance companies from owning stakes in credit card companies. However, antitrust commissioner Ronit Kan has reportedly not fully accepted that distinction.

The supervisor of banks at the Bank of Israel, Rony Hizkiyahu, is also hesitant about allowing insurance companies to own chunks of credit card companies.