U.S. Equity Company Warburg Pincus to Buy Israel’s Leumi Card for $680 Million

A Bank Leumi branch in Tel Aviv, Israel.
The fund will retain Leumi Card’s current management as it welcomes major foreign investors into the Israeli financial industry

Bank Leumi and Azrieli Group agreed over the weekend to sell Leumi Card, Israel’s second-biggest issuer of credit cards, to the U.S. private equity firm Warburg Pincus for 2.5 billion shekels ($680 million) and quite possibly more later on.

The deal not only represented an unusually high valuation for Leumi Card, but marks the entrance of a major foreign investors into the Israeli financial services industry and the first major step forward in the government’s plan for inject more competition into Israeli banking.

Warburg was one of 17 Israeli and international financial groups that had expressed an interest in Leumi Card, including the Israeli-American media entrepreneur Haim Saban through his Israeli mobile company, Partner Communications.

In spite of the high valuation – 30% more than Leumi Card’s shareholders and equity and base sum equal to 13 years of future profits – the sales had been ordered by the government under the so-called Strum law that sets a 2021 deadline for Israel’s two biggest banks to divest their credit card units.

The government hopes that Leumi Card and the much bigger Isracard, which is controlled by Bank Hapoalim, will expand their operations and become competitors to the banks.

“The sale of Leumi Card is a major event for the Israeli economy and another step forward is increasing competition. I expect the Bank of Israel to encourage Leumi Card to become a big, thereby increasing competition,” said Finance Minister Moshe Kahlon, who had led the bank-competition agenda.

The Bank of Israel issued a statement praising the deal and said it hoped to approve it by the first quarter of next year. With assets of $45 billion and a portfolio of 165 companies around the world, Warburg Pincus should meet all regulatory requirements easily. It also has a great deal of experience in finance and its portfolio counts 19 banks and 24 insurance and payment companies.

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