Deutsche Bank Buys Gabriel, Cerberus Shares in Bank Leumi

Sarit Menahem
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Sarit Menahem

Deutsche Bank has bought out the 4.9% Bank Leumi stake owned by the American hedge funds Cerberus Capital Management and Gabriel Capital Corp.

The German bank beat out three other foreign bidders.

Insiders believe Deutsche Bank will try to sell the shares among institutional investors in Israel or abroad, rather than keep them for itself.

Investment banks that acquire holdings of this magnitude typically buy them at a discount of up to several percent and sell them at a profit. Deutsche Bank is thought to have received a discount of 6%, enabling it to sell the shares at a lower discount and maintain its profit margin.

Cerberus and Gabriel jointly bought a 9.99% stake in Leumi in 2005, paying $500 million At the time the government was trying to sell off its controlling interest in the bank, but ultimately failed to create a controlling group. At a later stage, in 2007, the Bank of Israel refused to give the Cerberus-Gabriel group more time to obtain all the regulatory approvals they would have needed in order to own a controlling interest in a Israeli bank. That included permission from the Bank of Israel itself. But the main snag was that under American law, a hedge fund cannot own a bank, and Bank Leumi owns a subsidiary in New York.

They were therefore not entitled to buy the remaining 10.01% stake that the state still retained in Leumi, which is Israel's second-biggest bank.

After encountering problems as a result of the Bernard Madoff affair, and following losses in the U.S. financial and auto sectors, the two hedge fund groups had no choice but to sell their Leumi shares.

The law firm of Herzog, Fox & Neeman led an effort to sell the Cerberus-Gabriel holdings in the bank a month and a half ago. The only bidder was David Azrieli's Kanit Group, which bought a 4.8% stake in Leumi at NIS 10.5 per share, based on a market cap of NIS 15.5 billion.