Bank Hapoalim, Israel’s largest lender by market capitalization, said on Sunday it would be divesting its remaining 33% stake in its Isracard credit card subsidiary as a stock dividend to its shareholders.
The dividend will be paid to shareholders of record March 9. Hapoalim shares ended down 2.4% at 29.05 shekels ($8.42) in Tel Aviv Stock Exchange trading. Shares of Isracard, which will become a standalone company without a controlling shareholder, fell 2.4% to 12.45.
The decision follows a month of debate inside Hapoalim about how to best sell the remaining stake after it sold 65% of Isracard, Israel’s biggest credit card issuer, in a 1.8 billion-shekel ($514 million) initial public offering. Hapoalim and its No. 2 rival have been under orders from the government to divest their credit card units. Leumi sold its Leumi Card, since redubbed Max, to the U.S. private equity fund Warburg Pincus almost a year ago.
Hapoalim reportedly had an offer to buy Isracard from the American investors Blackstone Group at a 2.5 billion shekel valuation, 10% more than its TASE market cap. Yona Fogel, former CEO of Paz Oil and once a top executive at Bank Leumi, was also trying to form a group of wealthy Israeli investors to make a bid for Isracard.
The other alterative strategy for divesting the shares would have been a public offering on the TASE, but that would have spelled a sudden surge of shares and required Hapoalim to sell them at a discount of around 5%.
In the end, Hapoalim management, led by Dov Kotler, who became CEO last July, opted against selling Isracard to a strategic investor. The bank feared that a backer with big pockets, such as Blackstone, could turn Isrcard into a powerful competitor.
The dividend, worth between 800 million and 850 million shekels, will be recorded on the bank’s books as a reduction of capital. Hapoalim has capital of 4 billion shekels in excess of regulatory minimums after it stopped paying dividends due to the ongoing investigations of its alleged role in helping American clients evade U.S. taxes. Thus, the stock dividend will help boost the bank’s return on capital.
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Hapoalim’s decision is good news for Isracard’s current management, led by chairman Eyal Desheh and CEO Ron Wexler, because they will not have to answer to a controlling shareholder, as happened to the top executives at what is now Max. Max CEO Ron Fainaro has come under immense pressure from Warburg to improve the company’s performance as quickly as possible.
The sale of Isrcard and its final break with its bank owner marks the completion of the Strum committee reforms, which aims to step up competition in the banking sector by encouraging the credit card companies to become fuller-service lenders.
The last issuer still in the hands of a bank is Cal-Israel Credit Cards, which is controlled by Israel Discount Bank and First International Bank of Israel. They have until at least January 2021 to divest.