With Shlomi Sheffer

The Bank of Israel is examining Nochi Dankner's reply to the Supervisor of Banks query on problems over his cross ownership in

Bank Hapoalim (TASE:

POLI

) - through

Israel Salt Industries (TASE:

SALT

) and

IDB Holding Corporation (TASE:

IDBH

).

IDB is a major borrower from Bank Hapoalim, which Dankner is buying through Ganden Investments, a private company he controls.

Dankner has told the central bank he will sell his holdings in Salt Industries, which has the controlling share in Bank Hapoalim, even if the central bank does not approve the sale of his share in Bank Hapoalim to

Ellern Investments (TASE:

ELLR

).

Under the terms of a recently signed deal Ellern is to become the holding company of the Dankner family by buying control in

Dankner (TASE:

DKNR

) group,

Israel Salt Industries (TASE:

SALT

) and

Dor Chemicals (TASE:

DORC

).

Dankner also suggested that he deposit his shares in a trusteeship until the central bank makes a final decision on the Ellern deal.

If the Ellern deal is not approved, the trusteeship will be valid for 18 months. After that the central bank will determine what percentage of Dankner's holdings in Salt Industries are to be sold. This is to guarantee the financial stability of Salt Industries to the Bank of Israel's satisfaction.

As part of restructuring the Dankner Group investments, its controlling share in Bank Hapoalim will be managed by Ellern, and not via Salt Industries.

Nochi Dankner is also selling most of his holdings in Salt Industries to Ellern.

The Supervisor of Banks is expected to examine the affect of the change on the financial stability of the Dankner Group, which will effectively continue to hold a controlling share in Bank Hapoalim. The central bank is concerned that Nochi Dankner's exit from Salt Industries will undermine the financial stability of the Dankner Group, since it will have fewer partners.

Through Ganden Investments, Nochi Dankner is buying a 52% share in IDB Holdings, a major borrower from Bank Hapoalim . because of this the Supervisor of Banks wants Dankner to offload his holdings in Bank Hapoalim so the deal can be authorized. Dankner plans to do this by selling his holdings in Bank Hapoalim to Ellern - hence the connection between the two deals.

The problem that turned up recently is that the timetable for completing the IDB deal was set for November, but the Bank of Israel will not be able to complete its examination of the Ellern deal until then.

To prevent a delay in authorizing the IDB deal, the central bank asked Dankner to submit proposals on the status of his holdings in Salt Industries until the central bank makes a decision on the Ellern deal.