The Bottom Line / Buying at a Discount

No fewer than seven different organizations will start poring over Israel Discount Bank's books in the coming weeks to assess the quality of Israel's third-largest bank. Five of these are representatives of the five investment consortia that yesterday submitted bids to purchase Discount, along with a $10 million bank guarantee, to M.I. Holdings, the government company responsible for privatizing state-owned firms. The other two are assessors hired by the state to perform valuations of Discount.

The five bids submitted for Discount, all of which came from foreign investors, are a vote of confidence in Finance Minister Benjamin Netanyahu's economic policy, even though the sale is still far off. At a time when there is a growing outcry about excessive regulation in Israel and how hard it is to do business here, major investors such as Daniel Strauss, Edgar and Matthew Bronfman, Gerry Schwartz are expressing a desire to buy an Israeli bank. This is also happening at a time when Israel's banking system is facing an earthquake, in the form of a plan to divest the banks of their provident and mutual funds, and when the Knesset is considering 30 different bills that would reduce the banks' profits. And, as if all this were not enough, Discount is still considered an inefficient bank that suffers from poor labor relations, computerization problems and shrunken equity.

Six years ago, when the commercial banking environment was far more comfortable than it is today, only two groups submitted bids for Discount, and in the end, the tender for the bank's sale was canceled. So what has led the current group of investors to bid for Discount at this particular moment in time?

There are three possible reasons. The first, and probably the least important, is the Zionist factor. Strauss, Schwartz and Bronfman are all identified Jews who view the purchase of Discount as a way to invest in Israel.

The second is the determination evinced by Netanyahu. Even a few months ago, he was speaking about "six investors who are interested in buying Discount," and he can be forgiven for the absence of one of them. His determination to sell the bank told the investors that price would be a secondary consideration - and that is something that businessmen like to hear. Even Jewish ones.

The third factor is Discount's enormous potential. The bank has many quality assets that can be realized, it has a large and high-quality customer base, and its operational efficiency is very low, creating an opportunity for a major streamlining plan.

Many months will pass before the bank is sold. During these months, the bidders will conduct due diligence, and some of them will probably drop out or merge with some of the others. They could decide to drop out because the bank appears unsuitable based on what they find in its books. But they might also decide to quit should the bank's union embark on disturbances that will cool their enthusiasm.