Israel Discount Bank Calls Off Sale of N.Y. Unit

Israel's third-largest bank may try to meet 2015 capital adequacy ratio target by selling Discount Bank Latin America or issuing new shares.

Israel Discount Bank, Israel’s third-largest bank, announced Tuesday that it had decided to cancel the sale of Discount Bancorp, the parent company of IDB Bank New York, rejecting all proposals submitted.

It appears that the bank’s recent profits, combined with a reduction in the provision of credit to borrowers, has helped the bank come closer to meeting its core capital adequacy ratio targets. Consequently, the bank no longer feels the need to sell IDB, which it values at over three billion shekels ($900 million), to raise additional funds.

Discount must boost its core CAR to 9% under the Basel III guidelines by 2015, as stipulated by the Bank of Israel. As of the third quarter last year, its core CAR according to those guidelines was 8.7%.

Discount was said to have received four proposals to buy its New York unit last month from American investment funds that are primarily involved with banks in the United States.

Discount has not, however, ruled out the possibility of selling a smaller asset to raise funds.

“The process of considering the sale of Discount Bank Latin America, a subsidiary of IDB New York, will continue,” Discount said in a statement to the Tel Aviv Stock Exchange.

The decision by Discount’s board to cancel the sale leaves open the possibility that the bank will raise capital with a share issue instead of by selling assets. The board is expected to determine within another six months whether it can meet the 2015 target with current profits alone, or whether it will need to hold a share offering.

Discount’s decision comes just a month and half after the bank’s controlling shareholder, the Bronfman-Schron group, decided to sell its stake in the bank. The group had refused to inject more capital into the business or to allow it to issue new shares, a move that would have diluted the Bronfman-Schron stake in the bank.

Also a month and a half have passed since Discount competitor Bank Hapoalim said it was no longer considering buying the New York subsidiary, after it initially expressed an interest in IDB Bank.

Ofer Vaknin