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Bank of Israel Bank Supervisor Rony Hizkiyahu has stopped the appointment of Zion Keinan as the new CEO of Bank Hapoalim to replace Zvi Ziv, who resigned March 25. Hizkiyahu is looking into the circumstances surrounding the approval by Hapoalim's board of the resignation and subsequent appointment.

In an exceptionally strongly worded letter to Hapoalim chairman Dan Dankner, Hizkiyahu demanded the bank freeze Keinan's appointment until he finishes his examination. Keinan is presently the head of the corporate banking division.

In his letter, Hizkiyahu expressed his amazement as to the speed in which the appointment was made, as well as the decision making process and even aspects of corporate governance at the bank. Hizkiyahu's questions are more than a hint of what he may consider the possibility of management failures at Hapoalim.

The Bank Supervision Department of the central bank will examine if the minimal conditions for reaching a reasonable decision were met at the board meeting where the Ziv's resignation and Keinan's appointment were both approved.

The supervisor will also check whether the issue of replacing the CEO appeared on the board's agenda, which had been called to approve the bank's annual report.

Since there is a doubt as to whether the change in CEOs even was on the agenda, there is also a question as to whether there was any serious discussion of the matter. Such a discussion would have had two sides: the reason for the resignation and the appointment of a replacement.

Ziv reported his resignation stemmed from differences of opinion between Dankner and himself on the bank's future. Such disagreements obviously require the board's consideration, and the board is supposed to decide as to which of the two senior executives is correct in their strategic outlook for the bank. Based on the length of the meeting, it is unclear whether any such discussion took place.

The replacement of Ziv is particularly sensitive in light of the present economic crisis and the fact he resigned only the day before the publication of the bank's financial report. The resignation is unprecedented in Israeli banking.

Another question is whether other CEO candidates were considered in addition to Keinan. When Amiram Sivan resigned as the bank's CEO, the board looked at a large number of possible replacements and took a long time to do so. Hapoalim even offered the job to Bank Leumi CEO Galia Maor.

However, this time no such process took place, and Keinan was approved immediately without any search committee or even any other candidates being presented or considered.

Keinan will take over from Ziv only at the end of the year, so it certainly seems as if the board had adequate time to locate and consider other candidates - and appoint the most appropriate.

Over the last two years there have been a number of events related to Hapoalim's board that stirred the interest of the supervisor, including the replacement of the previous chairman, Shlomo Nehama under the similar circumstances of a one-day decision, and the resignation and replacement of external director Prof. Amir Barnea.

In light of the large number of controversial events, Hizkiyahu is likely to require a thorough examination of the board's actions, including the protocols and transcripts of the meetings and interviews with all those involved.

If the supervisor finds irregularities in Ziv's resignation and Keinan's appointment, Hizkiyahu could demand the board meet to discuss both issues again, and do so in depth.

Hizkiyahu also has the authority not to approve Keinan's appointment as CEO if he finds him unqualified or inappropriate, though any examination of Keinan's qualifications will not start before the examination of the board's actions is completed.

The supervisor also has the power to examine the actions of the chairman, Dankner, and the controlling shareholder, Shari Arison. It is not known whether Hizkiyahu intends to do so.

Hapoalim officials were angry and hurt that Hizkiyahu decided to release his letter to the media just minutes after he sent it Dankner.

A Bank Hapoalim spokesperson said, "It would have been appropriate for the bank to reply to the supervisor, not via the media."

Hizkiyahu's letter implies he hinted to Dankner on Thursday morning that he would not approve the appointment.

Nevertheless, when the bank reported its financial statements Thursday, Dankner was asked if he thought the supervisor would approve the appointment.

"Zion [Keinan] has been at the bank for 30 years. He was deputy CEO, and I do not see any reason why the appointment should not receive approval from the Bank of Israel," said Dankner.

He also said the bank had yet to officially ask Hizkiyahu for approval of the appointment, as required.