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The controlling shareholders of United Mizrahi Bank, the Wertheim-Ofer group, are considering merging the bank with its subsidiary Tefahot Mortgage Bank if they fail to sell Mizrahi.

The Wertheim-Ofer group has been negotiating over the sale of Mizrahi to insurance company Migdal, and the sides have reached an understanding that Migdal would pay for a controlling stake in the bank with a combination of cash and the Bank Leumi shares it holds. However, the negotiations have yet to mature into an actual agreement, as the controlling shareholder in Migdal, the Italian insurance concern Generali, has yet to give a green light for the deal. Generali is concerned about increasing its investment in Israel under current circumstances and prefers to wait untill the security-political situation clears up.

If Migdal were to buy a controlling share in Mizrahi, Generali would have to buy Bank Leumi's shares in Migdal. Leumi holds 20 percent of Migdal's equity, while Migdal holds 9.5 percent of Leumi's. The Bank of Israel and the Antitrust Authority will not authorize a deal that leaves Leumi with a major holding in Migdal and thereby a major holding in Bank Mizrahi as well.

Mizrahi's controlling shareholders have for some time been looking for a way to break up their partnership because of poor relations between the Ofer and Wertheim families. The possibility of merging Tefahot with Bank Mizrahi has arisen several times in recent years but disagreements between the two families scuttled any agreement on the issue.

The renewed interest in the possibility of merging Tefahot into Mizrahi is the result of a recent trend toward mergers between commercial banks and mortgage banks. Bank Hapoalim plans to merge with its mortgage subsidiary, Bank Mishkan, while Bank Leumi purchased shares in its subsidiary Leumi Mortgage bank a few months ago with the apparent aim of merging the two banks.

Bank Mizrahi's case differs from that of the other commercial banks because Tefahot and Mizrahi are around the same size. Tefahot has 300,000 customers and around 30 percent of the mortgage market, while Bank Mizrahi has some 100,000 customers and 9 percent of the commercial banking market.

Bank Mizrahi CEO Victor Medina has been in favor of a merger between the banks for several years and believes that a merger with Tefahot would enable Mizrahi to expand its client base with the help of the mortgage bank's client infrastructure. Most of Tefahot's customers currently bank with other commercial banks, and banking sector analysts believe that both Mizrahi and Tefahot would be able to expand their client base in the event of a merger.

The chairman of Mizrahi's board of directors, Idan Ofer, said in response that the issue of a merger between Mizrahi and Tefahot was under review.