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The talks between

Migdal Insurance (TASE:


) to buy the 26% stake held by the Ofer brothers in

United Mizrahi Bank (TASE:


) are on again. While each party has its own version of events, the upshot is the same: they want to close a deal.

Migdal is no equity investor here. If so, what strategic advantage does it see in buying such a hefty stake in the bank? Or, what is the synergetic edge it sees?

Migdal is controlled by the Italian insurance giant


. In Europe, mainly in Germany, France and England, the link between insurance companies and banks especially mortgage banks is especially tight. That is because the insurers use the banks as a platform to sell their coverage, from general insurance through to housing insurance to homebuyers, to life insurance.

The banks mediate the insurance deals, which also helps the insurers reduce transaction costs and improve yields for insurees.

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In Israel, however, the regulators have prohibited the banks from selling insurance products.

That law was enacted with the view of promoting competition over other interests. Allowing the banks to get into insurance could reduce competition, because the banks have direct access to millions of customers, and are well aware of their financial needs.

The law was also enacted at the behest of the insurance companies, which were afraid of losing their clout.

Israel's capital market has always suffered from excessive centralization and the excessive power of the banks, but in the last year it has contracted another disease: the system's stability has been compromised.

The problem goes beyond the collapse of Industrial Development Bank and of Trade Bank, each for a different reason. The profits of the remaining banks has been hammered, leading to a growing credit crunch for businesses.

Consequently, in the last year, the charms of competition have been fading to the benefit of stability.

If Migdal buys the Mizrahi controlling stake, it will bolster Mizrahi's stability not only because of Migdal's financial clout, but also because of the unification of their forces and synergetic rewards. The increasing importance of stability, Migdal hopes, will lead to the amendments in the law that it needs to realize its synergetic profits.

Clearly, those changes would increase Mizrahi's value for Migdal. But it is not clear whether it is a precondition for the deal, as the insurer already bought a 10% stake in

Bank Leumi (TASE:


) without waiting for the legislature to change the law. Although, it should be noted, that Leumi stake was not a controlling interest.

On the other hand, the Mizrahi deal would bring it a controlling interest. And when the investment horizon is that long in term, Migdal's decision on the matter which must be made before any legislative change will be a gamble in any case. Now it's for Generali's Giovanni Perissonotto to throw the dice.