Leumi likely to get back Migdal shares

Bank Leumi (TASE:LUMI) shares in Migdal Insurance and Financial Holdings Ltd. (TASE:MGDL), held by a trustee, will probably revert to the bank. Bank Leumi has already officially asked the Bank of Israel for the shares, and will likely get an answer soon.

The Bank of Israel spokesman said in response, "Since the issue is a specific bank, we cannot comment on the matter."

Bank Leumi owns 9.8% of Migdal, worth NIS 766 million. The Bank of Israel's interpretation of the Banking Law is that Migdal is a conglomerate, and a bank may own a holding in only one conglomerate. Since Bank Leumi also owns an 18% stake in Israel Corporation (TASE:ILCO), Supervisor of Bank Rony Hizkiyahu ordered Leumi to sell its stake in Migdal.

Since transferring the Migdal shares to a trustee, Adv. Michael Herzberg, a former legal advisor at the Bank of Israel, in January 2009, Bank Leumi has obtained five postponements for the sale. The current postponement expires on August 31.

Bank Leumi does not want to sell its Migdal shares. Together with the Bank of Israel, it has proposed an amendment to the law to redefine an insurance company as a company that operates in only one sector insurance - and is therefore not a conglomerate. Such a redefinition would enable the bank to keep the shares.

The amendment was passed on March 3, eliminating the original reason for Bank Leumi to sell its Migdal shares.

In 2007, the Bank of Israel ordered Bank Leumi to sell its 15.8% stake in Paz Oil Company Ltd. (TASE:PZOL), which is also defined as a conglomerate, by December 30, 2010. The bank has obtained several postponements on the sale, on condition that it handed the shares to Herzberg as trustee. The Paz holding is currently worth NIS 942 million, while Bank Leumi books it at a value of NIS 565 million. A sale of the shares at the current price would generate a pretax capital gain of NIS 250 million to the bank.

Published by Globes [online], Israel business news - www.globes-online.com - on April 12, 2010