BoI Chills Eliahu's Enthusiasm for Klein as Bank Leumi Chair

The Bank of Israel is not expected to approve the candidacy of David Klein for Bank Leumi's board of directors. The central bank's objection is not so much to Klein himself, but rather to Shlomo Eliahu's right to appoint Klein as a board member at Leumi.

Yesterday morning Eliahu called a press conference and announced his intentions to convene a special assembly of the bank's board to approve Klein's appointment, which would be effective following the retirement of current board chairman Eitan Raff.

In the past few weeks Eliahu took advantage of every opportunity to declare his intentions to try to gain control of Leumi. Although he has not yet filed an official request with the Bank of Israel to approve his purchase of a controlling stake in Leumi, Eliahu has told various audiences that he wants to buy a substantial share of the state's holdings in Leumi, when these are put up for sale.

According to the central bank's interpretation of the Marani law, which allows shareholders to appoint board members at banks, a board member cannot be chosen by someone who has not received a controlling shareholder's permit from the Bank of Israel, and Eliahu has received no such permit. This interpretation is not a given.

According to the Companies Law, a shareholder can suggest a candidate to represent him on a company's board. Similarly, that law allows a shareholder to vote in a general assembly for a particular candidate to the board.

Eliahu owns almost 10% of Leumi's share equity, and is therefore entitled to propose a candidate to represent him on the bank's board. He can also vote for such a candidate at a shareholders' assembly. Even so, the central bank apparently feels that the combination of these two - presenting a candidate and then voting for him at the assembly - is forbidden, as it is tantamount to appointing a board member at a bank.

The right to appoint a board member is reserved, as explained above, only to someone who has received express permission for such by the central bank. Eliahu is not expected to receive such a permit at this stage, and can therefore also not be allowed to appoint a member of the bank's board.

The Bank of Israel supports an amendment to the Marani Law, such that in future any shareholder in a bank will be entitled to appoint a representative to the bank's board, even without a controlling shareholder's permit.