Certain officials at MI Holdings, the government company in charge of government holdings, object to allowing

Israel Discount Bank

(TASE:DSCT) to sell all its holdings in fully-owned subsidiary

Israel Discount Bank of New York

to

Bank Hapoalim

(TASE:POLI), TheMarker has learned.

They would smile upon Hapoalim becoming a partner in Discount New York, possibly, as long as Discount retains a share of its crown asset.

MI Holdings has suggested an alternative: that Hapoalim infuse $800 million to Discount New York, which would keep the money in house, increasing its shareholders equity from $500 million to $1.3 billion. In return, Hapoalim would get 50% of Discount New York's shares, giving it a controlling stake.

The infusion would help Discount increase its capital ratio, MI Holdings claims, which is the bank's chief objective in waving goodbye to its most lucrative asset. With a 50% stake in Discount New York, Discount's own shareholders equity would increase by about $150 million, without it giving up full ownership of the asset.

If Discount were to sell its New York outfit to Hapoalim entirely, for $750 million or $800 million, Discount's equity would only grow by about the same - $150 million because of the resulting tax bill.

Bank Hapoalim officials yesterday said the bank wanted to fully take over Discount New York all or nothing, they said. Ergo, MI Holdings' objection could be a deal-breaker.

Bank Hapoalim is meanwhile negotiating with another American bank in case the talks to buy Discount New York fall through, TheMarker has learned. In any case Hapoalim wants to diversify its risk by expanding abroad, to increase the contribution of foreign activities from 15% of its income to 40%.