Federal Reserve OKs Bronfman's buy of Discount

Traders were unenthused by the news, however, and Discount shares closed up less than 0.1% at NIS 8.34 on Sunday.

bank discount 88 (photo credit: )
bank discount 88
(photo credit: )
The US Federal Reserve has approved Matthew Bronfman's taking control of Israel Discount Bank from the Israeli government almost a year after the businessman signed the deal to buy the bank. The authorization came after Discount's New York unit agreed to pay up to $25 million to end a money-laundering probe being carried out by the District Attorney of New York County. Israel Discount Bank of New York (IDBNY) will pay the City and State of New York $8.5m. to cover the costs of the investigation, as well as penalties of not more than $16.5m. The deal will protect IDBNY from prosecution providing it keeps to the agreement, which include commissioning an independent review of the conduct of its senior management in response to prior criticism by the bank's regulators. Based on the conclusions of the review, the bank's board of directors will determine whether disciplinary action should be taken against those involved. Discount's spokeswoman declined to comment on the case and on how much and when its Israeli management knew about the problems at the New York branch. Excellence Nessuah analyst Micha Goldberg, however, said that if management knew about the US probe earlier than last month, when it was first disclosed, regulatory law would have required the bank to reveal this. Although he believes the investigation has been expensive for Discount, Goldberg said it does allow Bronfman to finally buy the bank. "Looking forward, it's more positive than negative news, because it paves the way for Bronfman to get the authorizations he needs in Israel, and it should signify the beginning of a new era," he said. Traders were unenthused by the news, however, and Discount shares closed up less than 0.1% at NIS 8.34 on Sunday. According to Manhattan District Attorney Robert Morgenthau, the deficiencies at IDBNY had allowed certain customers to illegally move $2.2 billion from Brazil into its Fifth Avenue office over the last five years. IDBNY was informed of the problems at the start of 2001, but failed to implement the changes the regulators demanded. The DA said he and the bank's regulators decided to accept the settlement rather than prosecute Discount because of the proposed sale to Bronfman's group, who will be bound by the terms of the agreement. Bronfman agreed in January to buy 26% of Discount, which is Israel's third-largest bank, for NIS 1.3b. The deal gave him an option to buy another 25% within three years at the same valuation, while the state will also be eligible to receive another NIS 80m.-NIS 160m. if the bank's return on equity is 11%-13% within four years.