Deutsche Bank buys 5% of Discount Bank

Deutsche Bank on Tuesday won the bidding for 5 percent of the government's stake in Israel Discount Bank, the country's third-largest bank, in a deal worth NIS 435 million, or NIS 8.87 a share.

January 16, 2010 18:55
2 minute read.
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Deutsche Bank on Tuesday won the bidding for 5 percent of the government's stake in Israel Discount Bank, the country's third-largest bank, in a deal worth NIS 435 million, or NIS 8.87 a share.

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"The sale is a success for the State of Israel and represents a vote of confidence in the Israeli economy and its financial stability," Finance Minister Yuval Steinitz said. "As we have already said, we will act to sell the government's remaining holdings in the country's banks over the course of 2010."

On Monday, the Treasury announced that it was offering 5% of its 25% stake in Israel Discount Bank to 10 international banks, out of which five entered the bidding. As part of the offer, the Treasury included an option for the winner to buy another 3.33% at a 0.5% discount to the price paid for initial shares.

Deutsche Bank on Tuesday evening decided not to exercise the option of buying additional shares.

"The aim of the deal was to take advantage of the high level at which the shares of Israel Discount Bank are trading, enabling the government to start the sale process of its holding in the bank," Accountant-General Shuki Oren said. "The proceeds of the sale will enable us to reduce the need for the issuance of government bonds and to bring down the debt-to-GDP ratio."

Israel Discount Bank shares touched their highest level in a year on January 4, after more than doubling in 2009. The stock closed down 4.7% to NIS 8.67 on Tuesday.

Under the terms of the sale, the government, which now holds 20% of Israel Discount Bank, has committed itself not to sell any additional shares of the bank over the next 90 days. The timing and size of future lump sales will be decided by the Finance Ministry depending on market conditions.

"We will be monitoring the success of this equity distribution to the best of our ability to gauge the relative success of the offering," Joseph Wolf, an analyst at Barclays Capital, said Tuesday. "We would expect that the better the market reception to the offering, the more likely it is that the government will accelerate the sale of its remaining holdings."

Israel Discount Bank intends to issue a rights offering, he said, in part to shore up capital and in part to fund continued growth in the retail segment.

"A recent meeting we had with management confirmed that this should still be expected in the first quarter of 2010, pending relevant regulatory approvals," Wolf said.

Israel Discount Bank is controlled by the Bronfman-Schron Group, led by US businessman Matthew Bronfman. It holds a 26% stake in the bank, which it acquired from the government in 2006.

The government's deal with Deutsche Bank is part of a string of of privatizations of state-controlled companies. In addition to its holding in Israel Discount Bank, the state owns a 10% stake in Bank Leumi.

The Finance Ministry plans to sell these holdings in a number of transactions via the stock market in 2010. It expects the sale of both stakes to help the country's financing needs by NIS 4 billion. Last month, Barenboim Group Investments, controlled by businessman Zvika Barenboim, won the government tender for the sale of Industrial Development Bank of Israel, in a deal worth NIS 572m.

Bloomberg contributed to this report.

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