Finance Minister Netanyahu announced an innovative plan to
privatize Bank Leumi after 21 years of efforts proved
unsuccessful. Netanyahu said this plan is part of a three-
pronged strategy to fix the three worst problems in the
Israeli economy: the banks, the ports and the ownership of
land.
The Leumi options plan is to get underway in next month when
a team headed by Ministry of Finance Accountant General Dr.
Yaron Zalika will begin to prepare legislation for the first
privatization of its kind. The registration of eligible
citizens and the first sales of the benefit will begin in
February 2005 and last until May. Every Israeli citizen aged
18 or more and listed on the electoral roll will have the
right to acquire an identical share package which will be
priced at a discount to its market value. The shares may be
sold immediately for cash, or held which require a small
investment (probably NIS 200). If one sells immediately, he
will gain NIS 250 at current prices. Those who do hold on to
the shares will receive additional benefits towards the end
of the secular year. Those continuing to hold their shares
are scheduled to get additional share benefits about a year
later, currently valued at NIS 250, and about a year after
that, in 2007, currently valued at NIS 200. At current
prices, the total value to each citizen is estimated at NIS
700. However, the expectation is that prices will rise
substantially, increasing the value.
Shares will be distributed through the Postal Bank (Bank
HaDo'ar). Registration will take place almost a year from
now. A special account will be opened for each citizen for
free, with the option of automatically transferring the
proceeds to their regular bank account. The Postal Bank has a
nationwide network of 700 branches, is accessible to every
citizen, and has low fees.
The total value of the basic benefit to the general public is
estimated at NIS 3 billion, based on current prices. Shares
worth NIS 4 billion will be sold for NIS 1b., assuming all of
the more than 4 million Israelis eligible for the state's 35
percent share in Bank Leumi buy and hold the shares through
2007. The benefit will be tax exempt and capital gains from
the sale of shares will also be exempt from tax.
Netanyahu said, "Twenty years ago the state took money from
the people to prevent the collapse of Bank Leumi. I think the
time has come to return the bank to its owners -- the
citizens."
The Finance Minister explained, "Privatization through a
distribution of shares to the public at a discount is not
necessarily the preferred option for privatization. But Bank
Leumi is too big to be privatized through the sale of its
controlling interest. We therefore concluded that there was
no possibility of selling its controlling interest. That is
not the case for Israel Discount Bank, which we will
privatize by selling its controlling interest."
"Any company is better off in private hands than in the
state's," according to the Israeli Finance Minister.
Netanyahu stressed that one of the most important advantages
of this method of privatization is the participation of the
general public in nonfinancial stock market investments,
which will strengthen both the capital market and the Israeli
economy. The investment in the stock market in Israel is not
as broad as it is in other countries. He said that in the
past when the state transferred an asset to the private
sector, its value rose significantly, and pointed to the
recent rise in value of El Al as an example. He said that
this is because the state does not know how to manage its
business assets. Netanyahu recommended that people hold on to
the Leumi shares they receive, since the plan is designed so
that holding onto the shares will increase the public's
profits.
This privatization will signal to international markets the
state's determination not to own banks and manage businesses.
Netanyahu also said that privatizing Bank Leumi would help
the privatization of Discount Bank, because it signaled that
the privatization process was speeding up. Referring to
recent public controversies he said that the Ministry of
Finance does not aim to set fees, but to strengthen market
forces, to increase competition and to reduce centralization
in the banking system.
Netanyahu said, "We're in the midst of a process that will
result in Israel having a different capital market. We're
preparing a major reform that includes the capital market and
the banks. . . . This is a major measure that will the
subject of further discussion to deal with the question of
concentration in the capital market and to increase
competition."
The Israeli Finance Minister described the banking duopoly of
Poalim and Leumi as one of the three bottlenecks in Israel's
economy. The second is the ports monopoly, which he said
would be broken soon, either with or without the ports
workers' consent. The third bottleneck, he said, is the real
estate market, which is overly centralized since the state
owns 93 percent of the country's land. In Europe the state
only owns 45 percent of the land, and in the US it owns only
35 percent.
The real estate market also suffers from too many committees
and a labyrinthine bureaucracy. "Once we deal with these
three sources of economic centralization, Israel will have a
different economy," the Finance Minister concluded.
