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The body entrusted with nominating Bank Leumi's directors decided yesterday to recommend CEO Galia Maor as a new board member - possibly setting the stage for her appointment as bank chairwoman at the general shareholders meeting on March 11. The Bank Leumi Shares Committee proposed six candidates for the five open board positions.

The move has created a legal complication and put the committee, which represents the state's holdings but is independent of the political echelons, in direct confrontation with various ministers, including Finance Minister Yuval Steinitz.

The treasury and the Justice Ministry have released legal opinions that say Maor requires a "cooling off" period before she can join the board, but the committee's own legal advisers disagree.

The committee, headed by Margalit Nof, also chose to recommend that four present directors continue on in their posts: Moshe Dovrat, Yaacov Goldman, Nurit Segal and Moshe Vidman.

The committee also voted to nominate the former governor of the Bank of Israel, David Klein, to the board. Klein is the favored chairman candidate of Shlomo Eliahu, the bank's largest private shareholder with 9.6% of Leumi shares. The state still holds a bit over 10%.

What the committee did not do is nominate two of the candidates preferred by the politicians: Uri Yogev and Moshe Tery, both of whom are considered to be close to Prime Minister Benjamin Netanyahu.

Maor and Klein are expected to to compete head to head for both the fifth directors spot - and the post of chairman.

Yesterday the bank's board met and officially decided to hold the shareholder meeting on March 11, after Eliahu requested such a meeting so as to vote on Klein's candidacy - before Maor announced she was interested in the post.

What will Hizkiyahu do?

Steinitz strongly opposed Maor's appointment and attempted to intervene by calling Nof and informing her of three legal opinions stating Maor could not be nominated. Maor submitted a legal opinion saying she did not need a cooling off period.

In any case, the law states that no bank director may be appointed without the approval of the Bank of Israel's Supervisor of Banks, in this case Rony Hizkiyahu. This is where Maor may run into a problem, as the central bank's own legal opinion is against Maor's appointment, and everyone is waiting to see what Hizkiyahu, and governor Stanley Fischer, will decide, once Maor's name is submitted for approval.

It is likely the final word will belong to the Supreme Court.

The supervisor will be faced with a difficult choice. On one hand, the Bank of Israel respects Maor, who also served as supervisor of banks before her 15-year tenure as Leumi CEO. She is considered an excellent CEO who has guided the bank successfully through a number of crises, and has a good, cooperative relationship the supervisor.

In other words, professionally the central bank sees Maor as the ultimate candidate for the chairmanship.

On the other hand, Maor's candidacy causes the central bank two problems: First, the Bank of Israel's own general counsel, Nitza (Tida) Shamir, is of the opinion that the law does not allow Maor's candidacy without a cooling off period.

Second, there is the managerial side. If Maor is elected chairwoman, she will be the one in charge of picking her own successor as CEO, and this will almost certainly rule out any significant change at the bank. True, Maor's management is considered successful over the past decade, but a long-term continuation could lead to stagnation and and fixed thinking at the bank, or at least the Bank of Israel is worried about such a possibility.

Hizkiyahu and Fischer have been careful to keep silent on the issue, even while politicians were having their say - though it seems Hizkiyahu is not pleased with Maor's candidacy.

Over the weekend, Hizkiyahu met with senior banking officials and said there were problems with Maor's appointment.

The Bank of Israel had no comment on the matter.

What happens next?

Shareholders will meet on March 11 to vote for directors. In addition to Eliahu, other large private shareholders in the bank are David Azrieli, Yitzhak Tshuva and Alfred Akirov, each with about 5% of the bank's shares. In addition, various institutional investors hold voting blocs of shares, as well as the state.

If the shareholders approve all six of the board candidates, the five with the highest number of votes at the meeting will be chosen. All the directors will require the approval of the Bank of Israel.

After the directors are approved, the board will choose a new chairman to replace Eitan Raff, who is retiring after almost 15 years as chairman. The new chairman must come from within the board. The board's choice must be approved by the Shares Committee, which is required to consult with the finance minister and Bank of Israel on the appointment.

However, the committee does not have to receive their approval. If the committee does not agree to the appointment of the proposed chairman, the board will have to choose another candidate.