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By the end of the month, Finance Minister Silvan Shalom plans to decide whether it is feasible to sell Israel Discount Bank in its entirety. If such a sale is deemed unlikely, the finance minister would then give the green light for examining other options for privatizing the bank.

The treasury is reviewing an inquiry recently received from a group that expressed interest in acquiring control of Discount. In recent month, former U.S. undersecretary of state Stuart Eisenstat has also spoken about organizing a group of investors to purchase a controlling share of the bank. Eisenstat's associates have also shown interest in acquiring control of Bezeq and Zim, but have apparently not taken any practical steps in these potential deals.

Shalom would prefer to sell Bank Discount as a complete package and prevent the bank from unloading its Discount New York subsidiary. The concern is that the sale of the New York operation would greatly weaken Discount and make it more difficult to privatize the bank in the future.

Until now, the treasury has opposed a share issue by the bank as a way to raise capital. The issuing of additional shares would dilute the state's holdings, which currently stand at 57.1 percent.

If this stake were to fall below 50 percent, it would be difficult to sell control of the bank, the treasury fears. Treasury officials point to Bank Leumi as a precedent: state holdings in the bank have fallen below 50 percent, which has hurt efforts to sell control of Leumi.

If it becomes apparent that there is no serious candidate to buy Bank Discount in its entirety, the treasury is likely to change its stance and allow a share issue of several percentages of the bank's ownership. The treasury apparently considers this to be preferable to the sale of Discount New York.

Low market value hurts

But the low market value of the bank is liable to hurt the chances for a successful share issue. Bank Discount is currently traded at a market value of about NIS 2.4 billion, some 52 percent below shareholders' equity. At this current value, a sale of 10 percent of the state's holdings would yield only NIS 240,000, about half of the bank's near-term capital requirements.

In any event, the treasury is intent on taking action due to recent developments, including the collapse of the Industrial Development Bank and Trade Bank, which have raised concerns about the banking system's stability.

The chairman of the board of Bank Discount, Arie Mientkavich, has held talks and exchanged correspondence with treasury officials in recent months in an attempt to find a solution for the bank's capital shortfall. Mientkavich has focused on selling Discount New York as a way to inject new capital.

He has also reached an understanding with Bank Hapoalim on a potential deal for selling control of Discount New York's operations. According to this plan, Discount New York would be merged with Hapoalim's activities in the United States, including the private Signature Bank it established about two years ago.