Bank Reformer Opposes Mizrahi's Acquisition of Smaller Rival

Dror Strom comes out against merger just days before antitrust decision

Mizrahi Tefahot Bank CEO Eldad Fresher, February 27, 2018.
אבשלום ששוני

Mizrahi Tefahot Bank’s acquisition of its smaller rival, Union Bank of Israel, appeared to be running into trouble just days before antitrust regulators are due to rule on it, this after a key figure in the drive to create more banking competition has now come out against the tie-up.

Dror Strum, a former antitrust commissioner and chairman of a government committee that proposed measures to increase bank competition, said over the weekend that the merger would be a step backwards in opening up the industry.

“A merger between Mizrahi Tefahot and Union will cause great harm to competition and the structure of the market and will amount to a big reversal of the Strom reforms,” he said. “There’s no reason to allow a merger like this.”

Mizrahi, Israel’s third-largest lender and the country’s biggest mortgage lender, agreed to buy No. 6-ranked Union in an all-share deal. Union’s market capitalization on the Tel Aviv Stock Exchange is about 1.3 billion shekels ($360 million) after its shares rose 0.5% on Monday to 17.39 shekels. Mizrahi shares were also up, by 2.4% to 70.65, amid a rally of banking stocks.

The two banks have justified the merger on the grounds that it will better enable them to compete with Bank Hapoalim and Bank Leumi, by far the country’s two dominant lenders, which together hold a market share of around 60%. The Bank of Israel has for years pushed for a third large bank to compete.

But Strom said he didn’t buy that argument. “The claim that Mizrahi Bank with the addition of Union will be a ‘competitive tiger’ that will cut interest rates and offer super-competitive conditions to households is not serious,” he said.

Strom asserted that Union was positioned to better compete as a stand-alone in the merging market conditions being created by the Strom committee’s reform measures, which include forcing Hapoalim and Leumi to spin off their credit card units into separate companies that regulators hope will offer household banking services.

His remarks are in line with the views of the finance and economy ministries, therefore leaving Bank of Israel Banks Supervisor Hedva Ber as the chief advocate of the merger. Antitrust Authority legal adviser Uri Schwartz is due to make a decision on the matter.

Lawyers and economists representing Mizrahi’s and Union’s controlling shareholders are due to meet with Schwartz on Tuesday, with public hearings following on Thursday. A final decision is expected next week.

Observers said the authority is expected to either reject the merger or impose such onerous conditions on it that Mizrahi is likely to back out.

Both Finance Minister Moshe Kahlon and Economy and Industry Minster Eli Cohen have exerted pressure on Schwartz to veto the deal, but neither has the authority to block the merger.