Discount Bank mulls open market sale of First Int'l stake

Israel Discount Bank (TASE: DSCT), managed by Giora Offer, is considering the sale of its shares in First International Bank of Israel (TASE: FTIN1;FTIN5) unilaterally, without the agreement of Zadik Bino, who controls First International. Senior Discount Bank managers believe that understandings with Bino no longer confer any advantage, and that they should exploit First International's high share price to sell the shares.

"Selling the shares through the capital market is an easy, simple procedure that can be carried out within two or three weeks," says a senior Discount Bank executive. "First International's share price is high, and there's an opportunity here." In his view, despite the large amount of shares for sale, the market could absorb the amount of shares to be offered without a significant price decline. The shares could also be in several packages over a longer period.

Discount Bank holds a 26.45% stake in First International, with a market value of NIS 1.78 billion, after a 149% rise in First International's share price over the past year. Selling the shares at current market value will give Discount Bank a capital gain of NIS 120 million after tax.

The main incentive - capital adequacy

However, it is believed that Discount Bank's main incentive to sell shares of First International is not the capital gain but the dramatic impact on capital adequacy. Selling the First International stake will raise the capital adequacy ratio of Discount Bank by 1.2%, and its tier 1 capital ratio by 0.7%. In this way, Discount Bank will find a complete solution to the capital adequacy problem its has faced over the past year and a half. With the sale, Discount Bank's capital ration will rise above 13%, according to the Basel 2 rules. The extra capital will allow the bank to increase credit and grow in accordance with its strategic plan, while maintaining a capital adequacy ratio above 12.5%.

Published by Globes [online], Israel business news - www.globes-online.com - on January 6, 2010

Discount Bank mulls open market sale of First Int'l stake

A sale at current prices would boost Discount's capital ratio by 1.2%.