The obvious common denominator between everyone in the small huddle of people standing in line to buy Israel Discount Bank (TASE: DSCT) is that they are all from the US. Charles Kushner of New Jersey, Daniel Strauss, also of New Jersey, who will apparently join forces with Kushner, Larry Mizel, and Matthew Bronfman are all Americans.
This is no coincidence. It's entirely logical, and it stems from Minister of Finance Benjamin Netanyahu's familiarity with and connections in the US capital market. That is one thing that has brought this bunch of heavy hitters as potential buyers for Discount Bank.
It is not, however, the only thing. A few years ago, when the Wertheim and Ofer families wanted to buy United Mizrahi Bank (TASE: MZRH), they forewent the acquisition of Mizrahi Bank New York, which was sold to the Safra family on the eve of the Mizrahi Bank privatization. The reason was the exacting examination by the US authorities, which anyone wishing to buy a New York bank must undergo.
This examination is efficient. It is not as long as that conducted by the Bank of Israel, but it requires total disclosure by the relevant businessperson to the authorities, more extreme than that required by the Bank of Israel. Any potential buyer must undress for the Bank of Israel’s examination, but the examination by the US authorities requires a CT scan. That’s why Wertheim and Ofer chose to forego the pleasure by selling the New York holdings.
The acquisition of Discount Bank is a different story. Although Discount Bank chairman Arie Mientkavich yesterday cited Mercantile Discount Bank as the jewel in the Discount Bank crown, one of the main factors attracting buyers to the group, if not the only one, is still Israel Discount Bank of New York.
In 1999-2002, Discount Bank’s New York branch generated the huge sum of $212.5 million in profits. This profit dwarfs the results of Mercantile Discount, whose aggregate profit during the same period was a much more modest NIS 170 million ($38 million).
No sane buyer will compete to acquire the Discount Bank group without Discount New York. On the contrary; their motive in bidding for the Discount Bank group is to get their hands on Discount New York, whether in order to sell it at a profit, or to continue holding it. A potential buyer will therefore have to undergo the exacting examination imposed by the relevant US authorities: the US Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC).
The general opinion is that the buyers in question have a chance of clearing this high hurdle. Kushner even owns a small New Jersey bank already. The ideal bidder for Discount Bank is therefore an American with very solid finances, together with a local party with some connection to banking, who can guide the US partner through Israel's bureaucratic and regulatory maze.
Published by Globes [online] - www.globes.co.il - on February 25, 2004