Zvika Barinboim buying Industrial Dev. Bank

Zvika Barinboim, a well-known figure in the Israeli capital market, has beaten heavy competition to buy the controlling stake in Industrial Development Bank. The victory marks a comeback for the young financier, who had faded from the scene in recent years.

In recent months Barinboim, 39, had looked into several potential acquisitions, but none came to fruition.

His company BGI, which mainly markets clothing, is paying NIS 572 million for Industrial Development Bank, which isn't actually a bank anymore. After being nationalized, it lost its banking license and today does nothing but manage the loans in its portfolio. It has NIS 400 million in outstanding loans and another NIS 600 million in its doubtful-debt portfolio, which refers to borrowers who either aren't performing at all or are considered likely to default.

Industrial Development's loans portfolio also includes a dowry: tax deductible losses that BGI will be able to use to offset its own tax liability.

News of its win in the tender sent BGI stock up 20% on the Tel Aviv Stock Exchange yesterday.

BGI outbid Bank of Jerusalem and Mizrahi Tefahot Bank in a Monday auction held by the Government Companies Authority, which following the bank's nationalization is Industrial Development Bank's principal shareholder. Bank of Jerusalem bid NIS 555 million, while Mizrahi Tefahot offered NIS 505 million. BGI's bid was only NIS 17 million higher than Bank of Jerusalem's.

Finance Minister Yuval Steinitz said the sale was the first step in the off-loading of the state's stake in Leumi and Discount banks, sales that are expected to bring in billions of shekels and help reduce Israel's debt.

BGI also assumes responsibility for 35 employees, including the bank's chief executive Uri Galili and chairman Raanan Cohen.

Industrial Development reported employee salaries and severance expenses for 2008 of NIS 30 million.

Industrial Development Bank was incorporated in 1957 and operated as a commercial bank until 2002, when it collapsed and was nationalized. Since 2003 the bank has operated on runoff program, meaning that it has not accepted new business, focusing instead on collecting its existing loans and payoff of public deposits.

In April 2008 the government decided to privatize the bank and sell off its assets. The runoff program ended in July 2008, and its banking license expired.

Barinboim did not have an auspicious start to business. In the early 1990s he worked at a property brokerage in Tel Aviv, but had a falling out with the owner, and when stocks crashed in 1994, he fell into heavy debt. It took years to repay, with the help of a Haredi family from Brooklyn, the Silvers. Barinboim later married Natalie, daughter of businessman Avi Tyomkin. Today he is considered a close associate of defense minister and Labor Party leader Ehud Barak.

Barinboim first caught the market's attention in 2004, at the age of 34, when he bought textile company Polgat from Clal Industries for NIS 148 million. Within months he'd returned his investment through a giant NIS 152 million dividend. He and his partner in Polgat, Ofer Gilboa, floated subsidiary Bagir and brought in FIMI as a partner.

The rapid moves left mouths agape up and down Tel Aviv, and he came to be considered a "financier," buying and selling companies for quick profit. With the recession, Barinboim began trolling for opportunities. He was mentioned as a potential buyer for Golden Pages, Leader Investments and the mortgage insurance company EMI. But he bided his time and has now settled on the remains of Industrial Development Bank.