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The Antitrust Authority is leaning against allowing Nochi Dankner's IDB group to buy a controlling interest in Bank Hapoalim, say sources close to a government watchdog who recently spoke with TheMarker. However, antitrust officials are not yet convinced there are sufficient legal grounds to kill the deal.

Officials at the Antitrust Authority think the best bet might be to argue that competitors to IDB group companies would face higher credit costs if the deal went through. The law permits the rejection of a merger if it is likely to reduce competition significantly. IDB is Israel's biggest holding company with interests in every sector.

"It is a very bad deal," one of the sources close to the Antitrust Authority said. "The point of contact between the largest provider of credit in the market and a conglomerate with key holdings in important sectors is liable to put a squeeze on the credit choices available to IDB's competitors or raise their credit costs."

He added that the deal would have unprecedented, broad ramifications both in terms of increasing the concentration of wealth in the hands of the few and in terms of potentially handicapping IDB's rivals. "The deal was not green-lighted in advance, and getting approval for it is likely to be difficult," the source said.

Avi Weiss, who was assistant to the head of the Antitrust Authority under Dror Sturm, said the argument that the merger would damage the credit situation of IDB competitors "doesn't hold water" when it comes to antitrust issues. He said the attitude of "big is bad" is obsolete in many antitrust authorities around the world.

If Dankner is allowed to buy the shares he wants, he will share the controlling interest in Bank Hapoalim with Shari Arison, who has expressed her interest in holding onto a bigger piece of the pie than Dankner has.

Hirchson and Fischer must approve too

Ram Dagan adds: Two more hurdles that Dankner would have to face, assuming he can get the imprimaturs of the Antitrust Authority, the banking supervisor and the insurance companies supervisor, are the approval of the governor of the Bank of Israel and the finance minister.

"This is a weighty decision," a senior banking official said yesterday, "since it places the Israeli economy in a difficult position in which the country's largest holding company would control its largest and most powerful bank."

In the mid-1990s, the government passed a law prohibiting local banks from controlling non-financial companies.

Dankner's bid for Hapoalim will force the country's economic leaders to evaluate the mirror-image of this, and determine whether a conglomerate of non-financial companies can hold a controlling interest in the largest bank in Israel.