Major Foreign Banks Not Deterred by Lebanon War

The financial arm of the American federal government, the Overseas Private Investment Corporation (OPIC), is considering doing business in Israel.

The company's interest in financial activity in Israel is noteworthy, especially in light of widespread fears that foreign banks are reducing their activities in Israel due to the war in Lebanon.

OPIC, one of the largest federal financing bodies, assists American companies with overseas operations and invests in emerging markets in keeping with American foreign policy. It has so far extended one loan to Israel - $250 million for the laying of an underwater gas pipeline about five years ago.

Now, OPIC is considering another Israeli venture, in a totally different field: bonds issued on mortgage portfolios. In this type of transaction, mortgage banks sell their mortgage portfolios to others.

OPIC is considering purchasing mortgage portfolios from Israeli banks and then reselling the portfolios, apparently to American companies. Thanks to OPIC's involvement, the mortgage portfolios would receive high ratings and be able to fetch higher prices than the Israeli banks could obtain.

OPIC's involvement would also have another advantage: It generally purchases a bank's entire portfolio. Other buyers usually purchase only the lowest-risk loans, leaving the higher-risk loans with the bank. The bank must then retain capital to cover them instead of being able to invest its capital.

The European Investment Bank (EIB) has also recently expressed interest in Israel: It is investigating the possibility of extending low-interest financing to Israeli BOT (Build, Operate, Transfer) projects. In the BOT system, a company wins a tender to build an infrastructure project and operate it for a given period, usually 25 to 30 years; it then transfers the project to the state when this period ends.