Hapoalim Eyeing Purchase of Discount’s New York Unit

Market sources say odds of purchase going through are low due to regulatory issues, and because the outlay would force it to halt dividends.

Bank Hapoalim said on Thursday it was considering acquiring the New York subsidiary of its rival Israel Discount Bank.

Hapoalim, Israel’s largest bank, said in a statement to the Tel Aviv Stock Exchange it was “working to advance the process that will allow the bank to complete the necessary checks regarding Discount Bancorp.” It did not give details.

Discount values the New York unit at $900 million, although the board would prefer to sell only a 30% stake.The parent banks wants to sell all or part of the unit to shore up its capital adequacy ratio so that the Bank of Israel will permit it to increase lending and boost interest income.

Over the past year, Discount, Israel’s third-biggest bank, has shrunk its credit portfolio to strengthen its capital adequacy ratio.

Meanwhile, net income at Discount Bancorp slipped to $42.7 million in 2012 from $45.8 million in 2011, while total assets rose to $10 billion from $9.5 billion.

Hapoalim CEO Zion Kenan is seeking to buy the unit to expand its overseas operations since growth at home is limited; Hapoalim already controls the biggest share of Israel’s banking market. But market sources said Thursday the odds of Hapoalim acquiring Discount Bancorp were low because the outlay would force the bank to halt dividend payments.

That, in turn, would undermine the plans of Arison Group, Shari Arison’s closely held investment vehicle and Hapoalim’s controlling shareholder, to reduce its leverage. At the same time, purchasing only a stake in Discount Bancorp would present regulatory issues for Hapoalim by putting it in a partnership with Discount, a major competitor.

Hapoalim already has branches in New York, as well as banks in Miami, London, Paris and Zurich. It has representative offices in Canada, Latin America, Europe and Asia.

Earlier this week, Discount’s controlling shareholder the Bronfman-Schron group sold a 7% stake in the bank. It intends to liquidate its entire 25% stake in the next four months.

Shares of Discount Bank, which had been falling this week due to the Bronfman-Schron sale, ended 1.1% higher Thursday at 6.87 shekels. Hapoalim shares rose 0.4% to 19.63 shekels.

Ofer Vaknin