Bank of Israel Sees Credit Card Units Drawing Foreign Buyers

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  • Foreign credit card companies are also potential buyers
  • Credit card spinoffs could be sold on stock exchange

Israel’s top two credit card companies are attractive enough to lure foreign buyers, and the Bank of Israel would be open to letting them expand into banks, Deputy Governor Nadine Baudot-Trajtenberg said.

A government panel has proposed that the two largest lenders, Bank Hapoalim Ltd. and Bank Leumi Le-Israel Ltd., sell their credit card units as part of a broader proposal to boost competition in Israel’s concentrated financial industry. Baudot-Trajtenberg, a member of the committee, said she saw an array of potential buyers.

“There might be foreign players that could be interested in purchasing these companies,” Baudot-Trajtenberg said in a phone interview. “They could be private equity, or funds, or perhaps credit card companies. I think that this is a good business and I think certainly there should be buyers.”

The credit card operations could alternatively be sold to the public on the stock exchange or to domestic investors, she said. Finance Minister Moshe Kahlon has said he prefers to sell the companies on the Tel Aviv bourse.

The Tel Aviv banking index has declined by about 6 percent since the formation of the government panel was announced in June, about half the decline in the benchmark TA-25. The banking index fell 1.8 percent at 3:59 p.m. on Thursday, in line with the benchmark gauge.

Baudot-Trajtenberg pointed out that the credit card companies potentially have bigger prospects.

“We’ve seen elsewhere how credit card companies that started as credit cards eventually became banks,” she said. “We don’t want to dictate to the market exactly what these players are going to look like. We want to leave space for different players in the market.”

The central bank and Finance Ministry are at odds over whether Hapoalim and Leumi should be allowed to issue new credit cards once they sell their existing units. The ministry says the operations that are sold may have a hard time competing against a new generation of bank-run credit card companies. The Bank of Israel says consumers are liable to be hurt if the big banks aren’t allowed to issue new cards right away.

Another Oligopoly

“If we force the banks to divest and do not allow banks to issue credit cards afterwards we would be creating another oligopoly instead of enlarging the number of players in that market,” Baudot-Trajtenberg said.

To give the spinoffs some early protection, banks should be made to wait four years before offering cards to clients of their former units, she said.

Committee members also disagree over whether the Bank of Israel should regulate the units that are sold, as it does the banks’ credit card operations. Opponents say the central bank shouldn’t have oversight because its priority would be the stability of the financial system and not competition, according to a summary of the interim recommendations published by the Finance Ministry.

“We think the financial system as a whole cannot have leveraged players out there who are not supervised appropriately by people who have in mind financial stability,” Baudot-Trajtenberg said.