The Bank of Israel is considering its steps after Bank Leumi (TASE: LUMI) shareholder Shlomo Eliahu's success in getting two of his nominees appointed to the bank's board of directors at yesterday's general shareholders meeting. As far as the Bank of Israel is concerned, Eliahu is trying "to gain control of Bank Leumi without a control permit", and challenging the regulator and bypassing the Banking Law (Licensing). The Bank of Israel sees the appointment of directors on behalf of shareholders who have no control permit as "effective control."
Governor of the Bank of Israel Prof. Stanley Fischer and Supervisor of Banks David Zaken are now reviewing their options. They understand that anything they do will cause an open confrontation with Eliahu, and he, in response, will not hesitate to take legal action to secure his rights. Possible measures by the Bank of Israel include requiring Eliahu to formally apply for a control permit by a designated deadline, or reduce his stake in Bank Leumi to 4.99% from the current 9.59%.
When the original so-called Marani amendment was legislated in 2004, which states that the Bank of Israel must approve a holding of more than 5% in a bank, Eliahu obtained a special exemption to keep his Bank Leumi stake and not sell the excess shares. However, the permission was subject to him not using his extra power to take control of the bank.
The Bank of Israel is examining whether the appointment of two directors on Eliahu's behalf is a breach of his permit or not. In a statement this morning, the Bank of Israel said, "The Bank of Israel… considers it appropriate to repeat and emphasize that in banking corporations in which the means of control are widely dispersed among many shareholders, it must be ensured that those holding a high share of the means of control relative to most shareholders do not have the ability to direct the activity of the banking corporation without obtaining the required permit from the Governor of the Bank of Israel."
Eliahu has not applied for a control permit to date, and any such application would require him to sell his holding in Union Bank of Israel (TASE: UNON) and the pension insurance assets of his Eliahu Insurance Company Ltd.
Bank Leumi's general shareholders meeting approved the appointment of four new directors. Eliahu nominated six candidates, two of whom were elected: Amos Sapir, a former chairman of Standard & Poor's Maalot Ltd.; and Tsipi Samet, a former supervisor of capital markets, insurance and savings at the Ministry of Finance, who was appointed as an external director.
This is the first time that the government failed to get all its nominees elected to Bank Leumi's board of directors. The appointments committee chaired by Margalit Nof, offered four nominees, two of whom were elected: Miri Katz, a former chairwoman of the Israel Securities Authority, who term as director was extended; and former Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) CEO David Avner.
The Bank of Israel now has 60 days to approve the new directors, after conducting a fit and proper review of them. It will reportedly not make trouble, and it will approve Eliahu's nominees. There is a consensus that Samet and Sapir are worthy candidates and the Bank of Israel will find no cause to disqualify them, except for the fact that Eliahu nominated them.
An immediate step by the Bank of Israel will be to speed up the legislative process to amend the Marani amendment, which the Knesset Finance Committee is currently discussing. Fischer will reportedly personally act to speed up the legislation. The Bank of Israel also said in today's statement, "The proposed amendment strikes a balance between the rights of holders of the means of control to propose candidates to serve as directors and to work towards their appointment, and the aim of preventing effective control over a banking corporation being obtained without receipt of a permit from the Governor."
The Bank of Israel initiated the new amendment, which allows a bank shareholder with a stake of at least 2.5% to propose only one nominee for the board of directors.
Eliahu opposes the proposal and is trying to block its passage. The Bank of Israel has repeatedly said that approval of the amendment is a necessary condition for the sale of the government's holding in Bank Leumi. MI Holdings (State of Israel Properties) owns 6.46% of Bank Leumi (of which 1.1% of the shares will be allotted to Bank Leumi employees), and so long as the government owns at least 5% of Bank Leumi, it will be considered the legal controlling shareholder of the bank.
Shlomo Eliahu told "Globes" in response, "The Bank of Israel should supervise the bank's stability, capital adequacy, officeholders, and other issues, but it should not run the bank. If the Bank of Israel runs Bank Leumi, who will supervise? The appointment of directors is not the Bank of Israel's job."
Eliahu added, however, "I am not a troublemaker."
"Globes": Yesterday, two directors that you nominated were elected to Bank Leumi's board. Some people see this a challenge to the Bank of Israel, which is leading an amendment, which if passed, will prevent you from nominating more than one candidate.
Eliahu: "There's no connection between what happened yesterday and the Bank of Israel. The Bank of Israel today issued a statement saying that it wants to amend the law, but we work under current law, with all due respect.
"I nominated candidates, and the shareholders elected them, not just me and the Bank of Israel. The Bank of Israel should confirm the directors-elect, or reject them with explanations. The Bank of Israel has no other way."
Some people see the appointment of two directors on your behalf as at attempt to win control, even though you lack a control permit.
"After the new directors are confirmed, they sign confidentiality agreements and loyalty to the bank, so there is no control here or loyalty to the man who nominated them. Furthermore, there is no connection between me and the worthy candidates I nominated, and I, and the man who nominated them, don’t want their loyalty. I want the bank to be run properly and legally. This is a supervised bank."
Published by Globes [online], Israel business news - www.globes-online.com - on May 25, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011