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After a year of lobbying, Bank of Israel Supervisor of Banks Yoav Lehman has agreed to rescind certain regulations limiting the buyers of major stakes in Bank Leumi as well as the appointment of senior managers at the bank.

The original Marani Committee recommendations regarding privatization of Israel's second-largest bank included giving Lehman veto rights over the appointment of the board, CEO, internal auditor, and any worker reporting directly to the chief executive. Leumi management argued that the last group totaled over 70 senior managers, and would constitute giving the banking supervisor an excessive role at the bank.

Lehman has agreed to reduce this demand to seven managers whom he chooses. At banks with a controling stake - Hapoalim, United Mizrahi and First International - this regulation will apply to just four.

Lehman also agreed to allow shareholders with 1-percent stakes to be appointed to the bank's board of directors, subject to his approval. He will exercise the approval rights to ensure that a small group of investors does not take control of the bank through minor shareholdings.

Who will buy?

Finance Minister Benjamin Netanyahu plans to distribute stock options for a 36 percent stake in Bank Leumi to the general public. As a result, Eliahu Insurance controling shareholder Shlomo Eliahu - who holds a 10 percent stake in Bank Leumi - is likely to become the de facto controling shareholder in Leumi. He would be able to appoint directors, and therefore, take control of the bank. Eliahu also holds about one-third of insurance company The Israel Phoenix Assurance Company, and is a partner in the controling stake of Union Bank, Israel's sixth-largest bank.

It is generally accepted practice in companies with no single controling stake that the largest shareholder becomes the controling shareholder, determining how it should operate. However, the state felt this would be problematic, since small stake holders resulting from the sale of the public's options would be able to take control of the major financial institution. This unease led to the limitations recommended by the Marani Committee.

Finance Ministry Accountant General Yaron Zelekha is drafting a plan that would grant Israeli citizens over the age of 18 options to be exercised at 50-70 percent below Bank Leumi's market price. The benefit would be valued at NIS 500-700 per person or a total of NIS 3 billion.