The desire of Supervisor of Banks Dr. Hedva Ber to make the banks cut their real estate costs and leave Tel Aviv is liable to deal a severe blow to Israel's business center, which already faces disruption by work on the Tel Aviv light rail. When a bank closes a neighborhood branch, it's the bank's problem. When banks take their main offices out of central Tel Aviv, however, it's the city's problem. You don't have to be an urban planning expert to realize this. The Supervisor of Banks apparently decided to give the banks an incentive for leaving central Tel Aviv without bothering to assess or try to figure out the effects of this measure on the area in which the headquarters of these banks are currently located.
Renting offices on the outskirts of the city will indeed save the banks a lot of money, but the clear economic logic of this measure becomes somewhat less clear when you look at the accompanying Excel tables, and look out the window at the city streets - something that many brilliant economists sometimes forget to do. Then it turns out that removing a bank's headquarters is not just the closure of a neighborhood branch; it is a strategic move liable to have far-reaching consequences for the municipal economic scene. For example, what will be the severe effect on hundreds of small businesses in the Tel Aviv business center, from high-class restaurants to kiosks, which indirectly make their living from the activity of the banks' main offices in their proximity? Will the banks' removal be followed by law and accounting firms deriving much of their business from the banks? Will momentum be created, leading the major financial institutions with important offices located in the Tel Aviv business center to follow suit? What are the risks that Israel's most bustling economic zone will become just another urban wasteland?
Last week, Ber sent the banks a letter notifying them that she will grant concessions to banks reporting real estate cost-cutting plans. These concessions will allow the banks to recognize a capital gain on the sale of property as capital. The letter stated, "The Bank of Israel Banking Supervision Department is encouraging the banks to cut the real estate and maintenance costs of their headquarters and management units, including reconsideration of their geographic location."
Among other things, Ber's initiative is likely to affect Bank Hapoalim (TASE: POLI), Bank Leumi (TASE: LUMI), and First International Bank of Israel (TASE: FTIN), whose main management offices are on Rothschild Boulevard and the nearby streets. This location is no accident. The physical proximity of the principal financial institutions creates clear synergy both between the banks and with the entire financial system surrounding them. This system is already currently under pressure as a result of the work on construction of the Tel Aviv light rail red line, which will continue until the beginning of the next decade, limiting access to the area and significantly affecting the quality of life of the people living and working in the area.
As reported in "Globes," Israel Discount Bank (TASE: DSCT) has already announced a plan to transfer some of its headquarters activity to Rishon Lezion, but Discount Bank is now likely to increase the volume of activity transferred there from the Tel Aviv city center. Bank Hapoalim has been considering the transfer of its headquarters for a long time, and Ber's measure is likely to tip the scales. Bank Leumi and First International Bank are also not ruling out such a transfer, and intend to "study the distributed circular well." In this situation, it is best not to leave the decision on such an important matter to the exclusive considerations of the bankers and their regulators; opinions should be obtained from other professional parties.
Published by Globes [online], Israel Business News - www.globes-online.com - on March 13, 2017
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