Leumi Halts Dankner Debt Deal Pending Regulator Review

(Corrects size of bank in second paragraph of story first published April 17.)

Bank Leumi Le-Israel (LUMI) Ltd. said it will suspend a debt arrangement with tycoon Nochi Dankner’s Ganden Holdings Ltd. while the deal is reviewed by regulators.

Leumi, Israel’s second-biggest lender, announced the decision late today after the Bank of Israel’s commercial banking watchdog said it would examine the arrangement with Ganden and may also look at the practices of other banks.

“In light of the statement by the Supervisor of Banks that it is examining the matter, the bank has decided to suspend implementation of the debt arrangement until the review is completed, and will act according to the results,” Tel Aviv- based Leumi said in an e-mailed statement.

The regulator acted in response to media reports earlier today that Leumi would forgive 150 million shekels ($41.3 million) of Ganden’s debt and that other banks would forgive additional amounts. The Knesset Finance Committee announced today that it will hold a meeting on Tuesday to discuss “debt arrangements made by banks with tycoons.”

“The matter is being examined by the Supervisor of Banks,” the Bank of Israel said in a text message sent to journalists. “The guiding principle behind the review is to make sure that the bank operated properly, according to proper procedure, when the credit was given, during its management, and if necessary, during the making of the debt arrangement.”

Israeli holding companies are struggling to repay debt as they face unprofitable investments and new regulations to boost competition. Dankner’s IDB Holding Corp. (IDBH), which is seeking funds to meet payments on about 2.06 billion shekels of debt, in March proposed to transfer 15 percent of its shares to bondholders, as well as a 500 million-shekel cash injection. Elbit Imaging Ltd. (EMIT) in February reached an accord with major bondholders to restructure the company’s unsecured debt of 2.46 billion shekels.

Similar Arrangements

Ganden is in talks to reach a debt arrangement with its creditor banks that is “identical in principle” to hundreds of other arrangements that have been made by the Israeli business sector and are accepted in the developed world, a spokesman for the company said in an e-mailed statement.

The debt figures that were reported in the media are incorrect and the actual figures are “substantially smaller,” according to the Ganden statement.

Leumi shares declined 1.9 percent to 12.37 shekels today, and the TA-Bank Index, which measures the performance of the stock exchange’s five largest banks, dropped 2.2 percent. The TA-25 benchmark index fell 0.1 percent.

“What is worrying investors is not so much the issue of the loan itself, rather the politicization of how credit is allocated by the banks and the fact that the central bank is intervening in bank-customer relations,” Terence Klingman, head of research at Psagot Investment House Ltd., said today by phone.

To contact the reporters on this story: Alisa Odenheimer in Jerusalem at aodenheimer@bloomberg.net; Shoshanna Solomon in Tel Aviv at ssolomon22@bloomberg.net

To contact the editors responsible for this story: Claudia Maedler at cmaedler@bloomberg.net; Andrew J. Barden at barden@bloomberg.net

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