US-Israeli billionaire and philanthropist Shari Arison on Tuesday announced that she intends to sell her controlling share of Bank Hapoalim, the country’s largest bank.
The Bank of Israel, the country’s central bank whose approval was needed for the process, granted Hapoalim a one-year deadline to set a date to begin exercising the shares, and a total of four years — with the option of a two-year extension — to complete the sale.
Bank Hapoalim is valued at around NIS 36 billion ($10 billion) and Arison’s stake of 20% is worth NIS 7 billion ($1.93 billion). As holder of the largest stake in the bank, Arison was granted by the Bank of Israel the right to appoint the majority of Hapoalim’s board of directors. The shares of the lender were trading 2.6% lower at 1:08 p.m. in Tel Aviv, where they are traded.
In a statement, Arison said that board members Efrat Peled, Ido Stern, and Meir Wietchner will announce an end to their term.
“I had the privilege of being the controlling shareholder at the bank for the last 21 years,” Arison wrote. “I believe in Bank Hapoalim and want to thank the board members, the management, the generations of workers, and the loyal customers. I am convinced that Bank Hapoalim, one of the pillars of the Israeli economy, will continue to operate according to the vision of free finance, growth, expansion and loyal service to all its customers.”
Several months ago, Arison approached the Bank of Israel to review the option of decentralizing control of Hapoalim after contacts with North American investors failed to produce any strategic investors.
In a notification to its employees, Bank Hapoalim said Tuesday that “in terms of ongoing management, there is no change in the operation of the bank.”
“We will continue our jobs as usual, together with the current management team. The bank will continue to operate on behalf of its customers with great professionalism and great devotion, with the goal to continue to lead the financial system in the coming years,” it said.
Israeli banks have been facing increased competition and regulatory scrutiny regarding the fees they charge, which has caused them lay off employees and close branches. Bank Hapoalim is also being probed by US regulators for allegedly helping US citizens evade taxes.
In a call with journalists, Arik Pinto, the CEO and president of Bank Hapoalim, said that the fact that Arison did not manage to sell her stake to an investor, choosing to sell the shares on the stock exchange instead, is not a reflection on the bank.
“The bank is a strong bank with an excellent performance,” he said on the call. He said the decision to sell the shares on the stock exchange could be due to “considerations” at the Arison group and not connected to the bank’s performance.
He added however banks are facing a “not easy” period, from a regulatory point of view, as “there is a kind of uncertainty and there are many reforms in the air, and it could be that is having an impact.”
He said the sale of Arison’s shares will not affect the bank’s dividend policy. “A financial institution should pay out dividends,” he said.
In August, Bank Hapoalim said it would put its second quarter dividend on hold, due to the US tax evasion investigation, but didn’t add to the $365 million it has set aside for the investigation.
In 2014, Bank Leumi Le-Israel Ltd., Hapoalim’s biggest competitor, agreed to pay some $400 million to US regulators to settle a criminal probe after admitting it helped US taxpayers hide assets.
Pinto said that that the US investigation is the biggest issue weighing on the bank, and management is doing its utmost to resolve it.
The Bank of Israel said in a statement on Tuesday that Arison’s control permit will be replaced by a holding permit once holdings drop below 20% of the bank’s equity or by December 31, 2018.
The billionaire has a period of up to five years to reduce her stake to under 5% of the bank’s tital equity, the central bank said.
After the holding permit goes into effect, Bank Hapoalim will become a bank without a controlling core, whose shares are fully held by the public — directly or through the institutional investors managing the public’s investments and long term savings — similar to Bank Leumi, Israel Discount Bank Ltd., and recently Dexia Israel Bank Ltd. as well.
Last month, Arison was questioned by police for several hours on suspicion of involvement in a bribery case which investigators believe saw millions of dollars paid to government officials in African countries. Along with Arison, investigators at the Lahav 433 national crime unit in Lod also questioned Efrat Peled, the CEO of Arison Investments.
Both women were released but barred from leaving the country or contacting anyone connected to the investigation.
The case involves Shikun & Binui, one of Israel’s largest construction and infrastructure companies, which has many projects in Israel and around the world. Six senior executives were arrested in February on suspicion of making the illicit payments to support construction projects in unnamed countries in Africa.
In addition to bribery, Arison and Peled are suspected of Securities Law offenses relating to business reports.
The questioning came a week after Arison sold her controlling stake in Shikun & Binui to US-Israeli real estate investor Naty Saidoff for NIS 1.1 billion ($307 million), a price some 14% lower than the stock value, which traders attributed to the bribery suspicions.