Discount Bank Fights to Keep Cal Credit Card Unit

Discount Bank is actively seeking to extricate itself from the mandated sale of its 72% stake in credit card company Cal, signaling a potential collapse of the ongoing divestiture process. In an unusual move, the Israeli bank has formally petitioned the Bank of Israel and the Ministry of Finance to rescind the obligation to sell its controlling interest in the credit card firm.

The bank cites significant hurdles in finding a suitable buyer within the stipulated timeframe, a deadline set for mid-next year as part of broader regulatory requirements separating credit card operations from commercial banking. This regulatory push has already seen competitors like Bank Leumi and Bank Hapoalim successfully offload their respective credit card entities.

A key impediment highlighted by Discount Bank is the opposition from International Bank, which holds the remaining 28% of Cal. International Bank reportedly holds veto power over a potential initial public offering (IPO) of Cal, a path that Discount Bank might otherwise explore given the difficulties in securing a strategic buyer. The current transaction, initially agreed upon with the Horesh-Harel consortium, has faced protracted delays, primarily due to regulatory scrutiny from the Competition Authority.

The financial services sector in Israel has been undergoing a significant transformation, driven by legislation aimed at increasing competition and consumer choice. The separation of credit card operations from traditional banking was a cornerstone of this reform. However, the complexities of valuing and divesting these assets, especially in a dynamic economic climate, present considerable challenges, as evidenced by Discount Bank's current predicament.

Industry observers note that the credit card market, while robust, is subject to evolving payment technologies and increasing competition from fintech disruptors. Finding a buyer willing to meet valuation expectations, particularly for a significant stake like Discount Bank's, requires a favorable market environment and a clear regulatory path. The protracted nature of the Cal sale, which began nearly a year ago, underscores these difficulties.

Discount Bank's proactive approach, appealing directly to regulatory bodies, suggests a low probability of securing an alternative buyer or navigating the IPO route successfully before the mandated deadline. The bank's leadership, including CEO Avi Levi, appears determined to retain control of Cal, potentially arguing that the current market conditions and shareholder dynamics make an orderly sale unfeasible.

The situation raises questions about the future structure of Israel's credit card industry and the effectiveness of the regulatory framework in achieving its intended market-opening goals. The outcome of Discount Bank's appeal will be closely watched by financial institutions and investors navigating similar regulatory landscapes.