Bank Leumi le-Israel B.M.

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Bank Leumi le-Israel B.M.

24-32 Yehuda Halevy Street
Tel-Aviv 65546
Telephone: (972) 3 514-8111
Toll Free: (800) 892-5340
Fax: (972) 3 514-8656
Web site:

Public Corporation
Incorporated: 1902 as Anglo-Palestine Co. Ltd.
Employees: 11,457
Total Assets: NIS 248.2 billion ($52.38 billion) (2002)
Stock Exchanges: Tel Aviv
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522310 Mortgage and Other Loan Brokers; 523110 Investment Banking and Securities Dealing; 523120 Securities Brokerage; 523920 Portfolio Management; 523991 Trust, Fiduciary and Custody Activities; 525110 Pension Funds

Bank Leumi le-Israel B.M., Israel's second-largest bank, has its origins in the modern Zionist movement of the late 19th century and issued the nation's currency during its early years of independence. A full-service commercial bank, it also has subsidiaries engaged in such activities as issuing debentures, making loans for agriculture and industrial development, and offering mortgage loans, insurance, and a full range of investment, trust, and banking services, including managing portfolios and underwriting stock issues. It also invests directly in about 35 Israeli businesses and companies. Bank Leumi has five foreign subsidiaries and offices in 19 countries.

Origins and Evolution

The Jewish Colonial Trust was established in 1899 by the Second Zionist Congress with the intention to raise enough money to extend a loan to the government of the Ottoman Empire in return for a charter giving overseas Jews the legal right to settle in and develop Palestine. It was not successful in this goal but in 1902 founded Anglo-Palestine Co. Ltd., a bank incorporated that year in London. The following year, an office of the bank was opened in Palestine. Anglo-Palestine's meager resources did not allow it to function as the investment bank envisioned but as a commercial bank only, dealing almost exclusively in short-term credit for trade, services, and handicrafts. Nevertheless, the bank had opened five more branches in Palestine by 1914 and also one in Beirut, Lebanon, the financial and commercial center of the region. It also established a network of credit cooperative societies and played an important role in financing land purchases and settlement in Haifa, Jerusalem, and what became Tel Aviv.

In the aftermath of World War I, Palestine passed from Turkish to British rule. In 1921, Anglo-Palestine established its first subsidiary, a mortgage bank. The parent company formally changed its name to Anglo-Palestine Bank in 1930. By 1936, there were 32,000 deposit accounts. The bank expanded tremendously during World War II, and by the end of the war it held about half of all bank deposits in Palestine. It founded subsidiaries for agricultural and industrial development in the latter part of the war and also an investment subsidiary to deal in securities and grant long-term loans to local authorities and institutions. Anglo-Palestine Bank helped finance the struggle for independence from the British that followed World War II. As a consequence, Palestine was expelled from the pound sterling area, and the bank issued its own fully backed notes as currency. When Israel became independent in 1948, Anglo-Palestine retained the exclusive right to issue notes and was made the new government's sole banker and financial agent, remaining so until 1954, when a central bank, the Bank of Israel, was created. Since Anglo-Palestine was a foreign chartered company, a new Israeli-based one, Bank Leumi le-Israel B.M., was incorporated in its place in 1954.

Bank Leumi grew from 14 branches in 1948 to 53 at the end of 1954, when it also had representatives in New York, London, and Zurich. These cities subsequently became headquarters for foreign subsidiaries of the bank. A French subsidiary bank, headquartered in Paris, was founded in 1972 and one in Luxembourg in 1994. By the end of 1975 Bank Leumi had 307 branches, of which 293 were within Israel. This expansion was partly the result of acquiring other banks and credit cooperative societies, including the Union Bank of Israel, the Arab-Israel Bank, and Bank Kupat-Am. Bank Leumi issued its first credit card in 1978.

The following decade was an extremely difficult one for Bank Leumi, during which it lost its position as Israel's largest bank to Bank Hapoalim B.M. Israeli bank shares accounted for more than half of the stocks traded on the Tel Aviv Stock Exchange and were said to be the backbone of the national economy. The leading Israeli banks had greatly enhanced the value of their shares by buying their own stock. In October 1983, however, stockholders, fearing an imminent devaluation of the shekelIsrael's national currencyrushed to convert their bank shares into dollars. Panic selling of these stocks resulted in a two-week suspension of trading. The government then stepped in, taking over $6.9-billion worth of bank stock and promising to pay for them, with interest, over several years. Bank Leumi lost money in only one year but angered Israelis in 1986 when its chairman negotiated a "golden parachute" of $5 million in severance pay plus an annual pension of $360,000. Public outrage forced the entire board of directors to resign.

In accordance with its program to privatize major bank holdings, the government sold 22.4 percent of Bank Leumi in a 1993 public offering that reduced its stake to 72.6 percent. It also sold 60 percent of Union Bank, which was jointly owned with Bank Leumi, to a group of private investors. Appointed chief executive officer of Bank Leumi in 1995, Galia Maor became the first female head of an Israeli bank and the first woman to wield so much influence in Israel since Golda Meir had been premier in the 1970s. Her program to improve the bank's slim profit margin was to emphasize corporate rather than retail banking and to invest in electronic home banking in order to reduce reliance on costly branches. Bank Leumi already had closed nearly one-third of its 67 foreign branches since 1983 and had suffered heavy losses in the United States because of bad loans. During Maor's first seven years in office, the bank staff was cut by about 15 percent.

By the end of 2002, the government had reduced its stake in Bank Leumi to 41.73 percent and was seekingas it had for yearsto dispose of the rest. Another 28.08 percent of the common stock was in public hands. The government also had weakened the grip of Israel's banks on the national economy by legislation reducing their holdings engaged in non-banking activities. Bank Leumi established a global private-banking unit, with $30 billion under its management, in 2002.

Bank Leumi in the United States: 19542002

Bank Leumi opened an office on New York City's Wall Street in 1954 and formed First Israel Bank and Trust Company there in 1968, receiving a state charter, with an initial $75 million in assets and $67 million in deposits. Branches were established in Manhattan's garment district in 1969 and on Fifth Avenue in midtown, only steps from the heart of the diamond-and-jewelry district, in 1971. The bank changed its name to Bank Leumi Trust Company of New York in 1973 and offered free checking for its customers.

By 1976, Bank Leumi ranked 18th in size among banks in the state of New York, with deposits of between $700 million and $800 million and loans in excess of $300 million. Financing international trade, in large part between the United States and Israel, accounted for about half its business. In that year, the bank acquired scandal-ridden American Bank & Trust Company for $12.6 million. Acquisition of the bank, which was in receivership, included four or five branches and gave Bank Leumi a foothold in the Bronx and Brooklyn. The following year, it expanded to Long Island by opening a branch in Hewlett, and in 1978 it opened another in Great Neck. The bank now also had a representative office in Toronto and offshore branches in Nassau, Bahamas, and George Town, Cayman Islands.

Bank Leumi purchased 13 city branches from Bankers Trust Company in 1980 and the following year added another in Plainview, Long Island, reaching what proved to be its maximum extent of 25 branches in the United States. By 1984, Bank Leumi Trust Company of New York had some $2.7 billion in assets. Its advertising theme, "The Bank You Can Believe In," was intended to attract Jews without excluding other potential customers. "Some people need a little help getting to the Promised Land," read an ad for the bank's Individual Retirement Accounts. "If you dream of retiring to a land of milk and honey," it closed, "you're going to need plenty of bread." Branches in heavily Jewish neighborhoods shut down early on Friday for the Jewish Sabbath and opened again on Sunday. Three other Israeli banks had subsidiaries or offices in the city, but these, unlike Bank Leumi, emphasized commercial loans rather than retail accounts. Bank Leumi was working to extend its commercial reach by targeting small and medium-sized businesses.

Bank Leumi entered Westchester County in 1986 with a branch in White Plains. By now, it was the largest of New York City's banks aimed at ethnic customers such as the Irish, Italians, or Puerto Ricans. Employing more than 100 loan officers, it was, in 1987, making a major effort to find customers in the diamond, apparel, fur, and real-estate industries, which were Jewish-dominated sectors centered in Manhattan. However, some 70 percent of these loans were below $100,000. When the U.S. economy sank into recession at the beginning of the 1990s, many of these small businesses began to fail. Bank Leumi lost $48.6 million in 1990 and by midsummer 1991 had $243 million in bad loans, nearly 10 percent of its assets. Yet another $350 million in bad loans were transferred by the parent company to a separate unit, BLN Corporation, within the U.S. holding company Bank Leumi le-Israel Corporation. These missteps were attributed to Bank Leumi's desire to keep its customers happy in a competitive environment, but in part the bank was criminally lax.

Company Perspectives:

The bank's mission for the future is to continue to deliver premier products and personalized service to its valued clients and to focus on its specialized markets. It will continue to leverage its global reach, the strength of the Leumi Group, and the aptitude of its diverse employee workforce as it moves forward in the new century.

Some 30,000 small and unprofitable accounts were shed during 199293 as Bank Leumi essentially withdrew from retail banking, selling or closing all branches but the flagship Fifth Avenue headquarters and the one in the garment district between 1993 and 1996. Bank Leumi had, in 1991, decided on a major shift in focus with Premier Banking, targeted to the upscale customer affluent enough to deposit a minimum of $25,000. Those prepared to deposit at least $250,000 were offered a more customized approach. Special bank teams for textiles, real estate, and diamonds and jewelry targeted companies and top executives in these industries, offering to serve their needs with loans, letters of credit, cash management, and collection services. Some of these individuals represented the second and third generations of family-owned businesses.

Only 300 employees remained when Bank Leumi Trust Company of New York changed its name to Bank Leumi USA in 1997. As part of another reorganization, Bank Leumi USA assumed control of the parent company's branches in Chicago and Beverly Hills and Encino in California. The BLN unit was liquidated in 1998. By 2001, private banking was Bank Leumi's fastest-growing area and composed more than 40 percent of its income. The bank was also serving 250 middle-market clients and had some $4 billion in assets. In 2001, it opened a branch in San Jose, Californiaheadquarters for Silicon Valleybecause many high-technology companies were trading with their Israeli counterparts. Also in 2001, the bank established Leumi Investment Services, a brokerage subsidiary. In 2002, it acquired a Miami branch of parent Bank Leumi le-Israel that collected deposits from non-U.S. citizens and added $6 million worth of assets and $23 million of deposits purchased from the failed Net First National Bank of Boca Raton, which then became the site of another branch. Bank Leumi USA saw Florida as a growth area because its parent had offices throughout Latin America and wanted to expand its trade-related business in that market from the United States.

At its Manhattan headquarters, Bank Leumi hired a new marketing director in 2002 who was charged with raising the bank's profile among all ethnic groups. "We still advertise in certain ethnic publications, but they're not just Jewish anymore," she told Ben Jackson of American Banker. "I've tried to make the advertising more sophisticated so it appeals across the board." Zalman Siegel, chief executive officer, said the typical bank customer was still the owner of a small business specializing in apparel or diamonds and jewelry, but these clients were not as likely to be Jewish as in the past. Segal said many of the bank's customers were Indians who often bought and sold diamonds in India. The bank even sponsored at least one conference for diamond dealers of Indian descent.

Bank Leumi in 2002

In 2002, Bank Leumi had, including its subsidiaries, close to 300 branches and offices, with some 44 of them located abroad. It was organized along four business lines. Corporate and international banking consisted of a corporate division managing the activity of the bank's large business customers and multinational companies. It also held responsibility for the international finance and foreign trade sector at the bank and financing for the diamond sector. The international division was responsible for most activity overseas. Another division managed the activity of large business customers mainly engaged in construction and real estate. The banking division managed the activity of private and small commercial customers. The commercial banking division was managing the activity of middle-market companies. The global private banking division managed the activity of affluent customers and included private banking centers in Israel, tourist branches, trust services, securities trading, and the subsidiaries in Switzerland and Luxembourg. The investments division was responsible for developing financial and investment products, research relating to the capital and money markets, and managing the bank's 16 provident funds.

Bank Leumi's own investment portfolio included holdings in a television channel, high-technology companies, real estate, office equipment, consumer products, clothing and fashion accessories, chemicals, shipping, and energy. It also owned 20 percent of one of the largest insurance groups in Israel. In all, Bank Leumi had revenues of NIS8.13 billion ($1.73 billion) in 2002 and a long-term debt of NIS10.42 billion ($2.2 billion). Its total assets came to NIS248.2 billion ($52.38 billion), of which 86 percent were in Israel and 9 percent in the United States. Bank Leumi's net profit of NIS530 million ($112 million) abroad offset a loss of NIS110 million ($23 million) in Israel, whose economy was in recession.

Key Dates:

Anglo-Palestine Co. Ltd. is founded as a bank to serve Jews in the Holy Land.
Now Anglo-Palestine Bank, it holds about half of all bank deposits in Palestine.
Anglo-Palestine is the sole banker for the government of newly independent Israel.
A subsidiary bank is chartered in New York.
Bank Leumisuccessor to Anglo-Palestinenow has 307 branches.
The government takes over Israel's banks to avert a financial collapse.
The U.S. subsidiary has accumulated $600 million in bad loans.
The Israeli government has reduced its holding in Bank Leumi to 42 percent.

Principal Subsidiaries

Arab-Israel Bank Ltd.; Bank Leumi (France) SA (96%); Bank Leumi (Luxembourg); Bank Leumi (UK) plc (79%); Bank Leumi le-Israel (Switzerland, 69%); Bank Leumi le-Israel Corporation (United States); Bank Leumi USA; Leumi Mortgage Bank Ltd. (90%); Leumi Agricultural Development Ltd.; Leumi Finance Company Ltd.; Leumi Industrial Development Bank Ltd.; Leumi Leasing Ltd.; Leumi & Company Investment Bankers Ltd.; Ofek Securities and Investments Ltd.

Principal Divisions

Commercial Banking; Corporate Banking; Global Private Banking; Construction and Real Estate; Financial and Accounting Division; International Division; Investments.

Principal Competitors

Bank Hapoalim B.M.; The First International Bank of Israel ltd.; Israel Discount Bank Ltd.; United Mizrahi Bank Ltd.

Further Reading

Breznick, Alan, "Faltering Leumi Maps New Strategy," Crain's New York Business, July 6, 1987, pp. 1, 22.

Chira, Susan, "Leumi Appeal Not Just Ethnic," New York Times, May 14, 1984, pp. D1, D10.

Gabriel, Frederick, "Unbilled Twin Protects Bank Leumi's Profits," Crain's New York Business, October 2, 1995, p. 24.

Halevi, Nadav, et al., Banker to an Emerging Nation: The History of Bank Leumi Le-Israel, Jerusalem: Shikmona Publishing Company, 1981.

Isidore, Chris, "Bank Leumi's Passport to Financial Health," Crain's New York Business, May 18, 1998, p. 14.

"Israel Sells 22.4% Slice of Bank Leumi," American Banker, September 2, 1993, p. 24.

Jackson, Ben, "Leumi Casts Wider Net for Biz, Wealth Clients," American Banker, July 8, 2002, p. 5.

Leuchter, Miriam, "Bank Leumi Shrinking to Stanch Its Losses," Crain's New York Business, February 7, 1994, p. 4.

McNatt, Robert, "FBI Is Probing Bank Leumi Customer Accounts," Crain's New York Business, August 3, 1991, pp. 1, 22.

Merrill, Cristina, "Leumi's Bond with Diamond Trade Pays Off," American Banker, August 15, 1995, p. 8.

Moyer, Liz, "Bank Leumi to Link U.S. Units under One Name," American Banker, November 13, 1997, p. 8.

Robinson, Karina, "A Woman of Great Importance," Banker, April 2003, pp. 2627.

Sandler, Neal, "A New Face for Bank Leumi," Business Week, August 28, 1995, p. 89.

Silk, Leonard, "Overhauling Israeli Banking," New York Times, May 30, 1986, p. D2.

"Stocks Fall at Israeli Reopening," New York Times, October 24, 1983, p. D18.

Wels, Alena, "Bank Leumi Acquires American Bank & Trust," Journal of Commerce, October 21, 1976, pp. 12.

Robert Halasz