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The York Capital Management Fund is looking to increase its holdings in Bank Hapoalim from 5% to 9.9%, and this has raised no small number of issues.

But the fund already knows its order of priorities, one senior source said yesterday.

"If there is any internal conflict between our holdings in Psagot and our [planned] purchase of Bank Hapoalim shares, we will not hesitate for a moment and will forgo the bank shares," the source said.

York owns Psagot Investment House, Israel's biggest investment house, which manages the country's largest mutual fund, as well as its largest provident fund, Gadish.

This puts Psagot at center stage when bank clients consult their investment advisors on mutual and pension fund matters. As everyone knows, the banks are supposed to offer objective investment advice, and there should be no conflict of interest between the banks and the investment instruments.

If York does indeed increase its stake in Hapoalim to nearly 10%, this may leave the bank's investment advisers facing such a conflict of interest. A source at York said the company does not believe this will happen, since the fund is not buying controlling shares in the bank, but rather common shares. Nor will it have a representative on the board of directors, and therefore it will not be involved in running the bank.

"Our investment in Bank Hapoalim is a purely financial investment," said the source.

The potential purchase gives rise to another question, regarding Shari Arison, the bank's controlling shareholder. Would York's substantial share in the bank leave her "owing favors" to the fund, and thus negatively influence the considerations of the bank's investment advisors?

The York source would not say from whom the fund plans to buy Hapoalim shares, presuming the deal is approved by the Bank of Israel. He stated, however, that it is no longer possible to influence investment advisors' recommendations.

"Today the objectivity of the advisors is undisputed," he said.

The capital markets commissioner at the Finance Ministry, Yadin Antebi, may also have to approve the deal, so nothing is certain yet.