Leumi Looks Beyond Pia Deal

The sale of Bank Leumi's mutual funds management company, Leumi Pia, to Harel Insurance Investments last Thursday has reverberated throughout the capital markets.

Several criticisms were lodged against Bank Leumi for selling too hastily, prior to completion of the bank's planned privatization, for not issuing a tender and for not turning to companies like Clal Insurance or Migdal Insurance, which may have offered a better price.

Osnat Ronen, deputy CEO of Leumi and Co., who took part in the Leumi negotiating team on the Pia deal, rejected those claims in an interview with Haaretz. She noted there would be other assets to sell, so there was no reason to be upset.

You shocked the market on Thursday.

"Yes. We know, too, how to be dynamic."

Did you rush because the state's tender for selling Bank Leumi shares to a new controlling shareholder heated up?

"No, there's no connection. They've been privatizing Bank Leumi for 10 years."

But now it seems more serious. There will soon be a new owner at the bank. Isn't it a bit problematic that you inked a deal just weeks before knowing who it is to be?

"Representatives of M.I. Holdings, which is responsible for selling the bank on the state's behalf, were in the picture, and they gave us the go ahead."

It's obvious that the deal is part and parcel of implementing the Bachar committee reforms.

"Of course. It's not a sale by free will."

How long were contacts going on?

"Communication with Harel lasted months. The negotiations themselves took much less time."

Does the deal have a compensation mechanism regarding the level of distribution fees?

"I don't want to go into details at this stage, because the final deal has yet to be signed. In any event, there are already indications regarding distribution fees."

Why did you specifically choose to sell Pia first?

"We have four assets for sale - the supplementary training fund (Kahal), provident funds (Otzma), and mutual funds (Psagot and Pia). It was most convenient to sell Pia first - there are no partners or involvement within several spheres."

[Kahal is jointly owned by Leumi and Israel Discount Bank, Psagot manages financial portfolios and provident funds alongside mutual funds - R.S.]

Perhaps you wanted to stay with Psagot because it is more successful?

"When you have two daughters, you love them both. Pia is an excellent company with outstanding management."

Complaints were heard by major insurance companies, Migdal and Clal Insurance, that you didn't ask them to make an offer. Perhaps you could have made a better deal?

"I don't want to get into details about how the deal was handled. We have other assets to sell and, moreover, there are other banks that will be selling their assets. In any event, Harel is a great buyer. It's important to us that Pia continues to thrive, being that owners participating in the funds are our clients in other fields."

It's unclear whether there are so many other assets for sale. There are many buyers, and if Bank Hapoalim sells one fund company, the situation could remain static for quite some time. (The two major banks need to reduce the size of their holdings in the funds within four years, needing only to rid themselves of all mutual funds at the end of the four-year period).

"A prime opportunity was laid upon our table by a good buyer, and we took advantage of it. We are now preparing all the assets for sale."

You could theoretically stay with Psagot another three to four years. Do you have any such intentions?

"We can't keep the funds four full years. There's an element of risk here, as you can't sell this type of asset in any market condition. Moreover, management is responsible for completing the process within the time limit. Still, we haven't decided the timing of selling the other assets."

Perhaps the price isn't high enough. You sold Pia for less than what IDB Holdings got for Ilanot Discount (NIS 36 million per NIS 1 billion of assets, rather than NIS 33 million per NIS 1 billion of assets).

"The sale price was similar to Ilanot. Other parameters enter the picture for a mutual fund."

The price IDB fetched influenced Pia's price?

"We analyzed that deal as much as possible and made our own assessments as well."

So, was it a good price?

"It was a fair price"

As long as you don't sell Psagot, Pia will remain somewhat inferior, as you can continue to direct public funds to Psagot at Pia's expense.

"We are providing objective advice without any connection to ownership of the assets. We also sell other financial assets and the market has grown."

Still, 90 percent of the funds in Pia and Psagot come from Bank Leumi. Perhaps you wanted to behave now because of the Israel Securities Authority investigation into Leumi's funds?

"That's totally unrelated. We always behave."

You simply wanted to be the first to sell?

"It's nice to be first, but it's not a goal."

You've created momentum in the market. Will everything look different from here on out?

"We took into account that we'd be the benchmark for computing prices of other assets. There's no doubt a new era in the capital markets has dawned."