Israel is becoming a hot spot for private banking as a growing number of foreign and domestic banks develop services and target them at the ...

Israel is becoming a hot spot for private banking as a growing number of foreign and domestic banks develop services and target them at the country’s high net worth population. Despite the country’s low economic growth rate, estimated at one and a half to two per cent by the International Monetary Fund, Israel’s economic and political situation is attracting private banks for a number of classic reasons. They are latching on to the strong annual savings rate, estimated at ten to 12 per cent by Goldman Sachs, the controlled near-zero inflation rate and the sustained boom in the technology sector as key economic attractions. Meanwhile, the Intifada and endemic political instability are also encouraging a flight to quality among the country’s high net worth investors, which again is attractive for the international players. Forthcoming regulatory changes will probably precipitate a free flow of investment capital into offshore products and services and accelerate this flight to quality.

In recent weeks a number of international banks have stepped up their activities in the country. These include Investec Holdings, which has taken a majority share in Bank Clali. Meanwhile, the Rothschild Group recently purchased a 25 per cent share in the Israel-based Excellence Investment House for a sum of $3.2m. Citigroup has recently stepped up its marketing in the region, holding a roadshow to advertise products and services to up to 100 of Israel’s wealthiest families. Credit Suisse has also hinted at local expansion plans and HSBC Group recently hired the deputy general manager of First International Bank of Israel to head its new commercial and private banking operation in Tel Aviv.

Domestic banks are not, however, taking competition from the international players lying down. In particular, they are trying to develop international capability in order to compete with the global players by offering a full range of offshore and onshore services.

One home-grown player, Bank Leumi, looks set to build a full-service international private banking unit, following a restructuring that has created two new divisions which are dedicated to private banking. The first of these, the global private banking division, combines a number of Leumi’s international and domestic private banking lines. These include Leumi’s subsidiaries and units in Switzerland, the UK, Luxembourg and the US, as well as Ofek Securities & Investments, Bank Leumi Trust Company and Leumi’s so-called tourist branches in Israel. Zvi Itskovitch will head this new division. The other private banking division, the investment division, will be devoted to researching and developing investment products and client asset management. Dov Gilboa will head this unit.

Bank Hapoalim, meanwhile, launched a six-branch private banking network in New York in May this year under the brand of Signature Bank, offering international services and targeting expatriate money. FIBI has also turned its attention abroad, exploiting its ties with the Safra family and restructuring its London office to focus on private banking.

All this activity in Israel among indicates that both domestic and international players are making a significant commitment to the market. Their confidence is not unmerited. On the one hand, wealth creation is currently strong, especially since Israel’s technology sector has been growing at a steady rate and has remained healthy in the face of the international slump. On the other hand, however, any escalation of the political crisis could result in capital flight. This would favour private banks with a strong international capability.