Strong demand for Leumi early retirement program

Rakefet Russak-Aminoach
Rakefet Russak-Aminoach

The bank has filled its quota, and is no longer accepting applications from employees.

Sources inform "Globes" that less than two months after Bank Leumi (TASE: LUMI) announced its voluntary retirement program, it has filled its quota, and is no longer accepting applications from employees. It is believed that 400-500 employees have already signed retirement documents at the bank, with the bank having a list of several hundred more employees who expressed their wish to retire. 700 employees are slated to retire in the bank's program.

The bank planned to finish the program by the end of the year, and offered a NIS 25,000 incentive for those registering by the end of September. It appears that this incentive was effective; within just a few weeks, the bank has managed to fill its voluntary retirement list.

Another factor in the program's success was the retirement terms, devised by management in cooperation with the workers' committee. The program includes enlarged compensation of 250-270%, depending on the retiree's age, plus a bridging pension until retirement age.

In contrast to other retirement programs, Bank Leumi has opened the program to young employees, not only those approaching retirement age. Young employees were offered 270% compensation, but obviously without a bridging pension.

Bank Leumi's efficiency ratio is poor. CEO Rakefet Russak-Aminoach has been leading streamlining measures in recent years, including personnel cuts of over 1,000 employees consolidation of headquarters, and closing down branches.

The bank has taken advantage of the benefit offered by the Bank of Israel for streamlining, in which the cost of streamlining plans submitted by the end of the year will not affect the bank's capital adequacy ratio. Bank Leumi was the first, and so far the only, bank to announce a cost-cutting plan. Its early retirement program will cost NIS 440 million.

In addition to its poor efficiency ratio, Bank Leumi is also facing the problem of unfunded pensions for its first generation employees. Bank Leumi is the only bank that gives employees an unfunded pension. These pensions are a significant burden on the bank's capital. 7,000 employees are involved, including pensioners, and the pension liability for them amounts to NIS 16 billion, while the bank's capital totals NIS 29.6 billion.

Bank Leumi management wanted to deal with the problem of unfunded pensions. In the past, the bank switched executives with personal contracts from unfunded to funded pensions. The workers' committee, headed by Miri Rubino, and the Histadrut (General Federation of Labor in Israel) , however did not allow any interference with unfunded pensions, so the bank is focusing its cost cutting on reducing its personnel.

Published by Globes [online], Israel business news - www.globes-online.com - on July 19, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Rakefet Russak-Aminoach
Rakefet Russak-Aminoach
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