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The Finance Ministry's internal committee charged with reviewing issues related to the privatization of Bank Leumi is likely to advise that the Migdal Insurance company not be allowed to acquire a controling stake in the bank. Migdal is already the largest player on the Israeli insurance scene, with a 27 percent share of total premiums in 2001, and the recommendation addresses concerns with regard to the company extending its control over the financial market.

The government has begun plans for selling its majority stake in Bank Leumi, via a public sale, and in order to investigate the implications of such a sale (the identification and approval of shareholders of the bank that could acquire controling stakes via the TASE), Finance Minister Silvan Shalom set up a committee chaired by treasury director-general Ohad Marani. Among those supporting the recommendation to restrict Migdal's involvement are the supervisor of insurance, Tsippi Samet, the Bank of Israel's representatives on the committee, among them banking supervisor Yitzhak Tal, and the chairman of the Securities Authority, Miri Katz.

To compound matters, Bank Leumi holds 20 percent of Migdal's shares, while Migdal, in turn, holds 9.4 percent of Leumi. The value of the insurance company's investment in the bank at the end of 2001 reached NIS 1.11 billion, which included investments from its life insurance business.

Migdal has spent the past three years buying up its Leumi holding, which is currently listed as fixed investments in the insurance firm's books. The company has said in the past that it would like to compete for acquiring control of Bank Leumi, the second largest bank in the economy.

As part of the authorities' strategy involved in the decision, they would like to see Migdal increase its presence in areas that compete with the banks, such as credit and mortgages. They believe that allowing Migdal to take a greater stake in Leumi and combining the two major players would do the very opposite, stifling competition in the banking and insurance markets.

During its deliberations, Marani's committee considered not to recommend censuring businessman Shlomo Eliahu in taking a controling stake in Leumi, despite his deep-seated interests in the financial and insurance markets, including the Eliahu insurance company, 37 percent of the Phoenix insurance firm and a one-third stake in Union Bank (Bank Igud).