Israel Discount Bank Mulls Selling Its Swiss Unit

The private-banking operation is losing money despite its takeover of a local rival.

Ofer Vaknin

After 13 years of operations, Israel Discount Bank is considering selling its loss-making private-banking business in Switzerland, sources have told TheMarker.

The bank, which serves both Israeli and foreign clients, is based in Geneva. Last year it posted a 9-million-shekel ($2.45 million) loss, widening from 7 million shekels the year before.

In a statement, Discount said it was weighing various solutions for the unit, which is called IDB (Swiss) Bank Ltd., Geneva. “Within the framework of our strategic plan, we are examining every aspect of group operations and haven’t yet made any decisions,” it said.

Discount closed its Zurich operations last year, five years after establishing them when it bought the bank Arzi for 138 million shekels and merged it with the Geneva operation. The tie-up, however, didn’t give Discount the scale it had hoped for, while tighter regulatory scrutiny by the Swiss authorities increased costs.

In divesting its Swiss operations, Discount would join Bank Leumi, which agreed in July to sell its Leumi Private Bank unit – which was managing 6 billion francs ($6.3 billion) of assets – to Bank Julius Baer. Leumi’s Swiss operations are under investigation by the U.S. tax authorities.

Discount has been paring back its overseas operations as it seeks to improve its capital adequacy ratio, a measure of a bank’s financial strength that the Bank of Israel has ordered lenders to improve.

Two weeks ago the supervisor of banks, David Zaken, toughened the standard further, telling banks to set aside more capital to cover risks from mortgage lending. As a result, Discount will have to increase its capital adequacy ratio by 0.2 percentage point to 9.2% by 2017, an effort equal to 200 million shekels.

Selling or shuttering its Swiss operations, which are valued in Discount’s books at 207 million shekels, would free up capital that the bank could put into areas where it can earn a higher rate of return, such as Israeli retail banking.