Strum Curbs Banks' Long Arm in Monopolies

Banks will be required to receive Antitrust Authority approval to finance the purchase of companies competing with those already held by banks.

Banks will be required to receive Antitrust Authority approval to finance the purchase of companies competing with those already held by banks.

The regulation follows Bank Leumi's financing of businessman Eli Elazra's purchase of 96 percent of Albar Leasing from Discount Investments for NIS 269 million. To finance the deal, Elazra took a loan estimated at NIS 150-200 million from Leumi, which also owns Leumi Leasing. Leumi took a lien on Albar as collateral for the deal.

The deal created a situation in which Bank Leumi would own not only Leumi Leasing, the country's largest financial leasing company in the banking sector, but also Albar, the country's largest non-bank leasing company, if it foreclosed on Elazra's collateral.

According to figures released by Dun and Bradstreet three months ago, Leumi Leasing has assets of $205 million while Albar has assets of $590 million. Foreclosing on Elazra's collateral would give Bank Leumi a monopoly in the leasing sector.

Antitrust Authority Commissioner Dror Strum, therefore, instructed Bank Leumi to sell its holdings in Albar if and when it forecloses on the company. Strum also issued an instruction to banks that would require authority approval before they could seize the shares of competing companies when foreclosing on collateral.

According to financing laws, when an institution wishes to foreclose on collateral it must be done through the Bailiff's Office, with the exception of banks, which can foreclose on the assets on which they themselves have a lien. Under Strum's new instructions, a bank that seizes the shares of a competing company would not be able to manage it.

It would appear that Strum's decision is intended to make the financing of the purchase of competing companies less worthwhile. Since the commissioner is not able to forbid a bank to finance the purchase of a specific company, he is apparently taking a roundabout route that may discourage the banks from financing deals that do not provide them with adequate securities.