World Finance talks digital expansion, new appointments and European mergers with leading Israeli banking corporation, the Leumi Group
After the establishment of Israel in 1948, the Leumi Group operated in a dual-role capacity: as a regular bank, serving customers, as well as the Central Bank of Israel, until the Central Bank itself was organised and officially established. Since then, Bank Leumi has grown along with the state of Israel and has contributed significantly to its development, with its vision centred on being a banking group that is involved in and supports the welfare of the community.
“The bank sees itself as a supporter of the community, involved in many areas – such as education – and a supporter of the community in general,” says First Executive Vice President and Head of the International and Private Banking Division, Zvi Itskovitch. “We champion organisations acting in aid of the needy, arts and culture and a variety of other activities including science, entrepreneurship and leadership.
“The board of directors and head management, under the leadership of the outgoing CEO Galia Maor, and the incoming CEO, Rakefet Roussak Aminoach, are well aware of the importance of community involvement and Bank Leumi will continue to invest in these areas.”
Adapting to succeed
The new appointments within the bank’s management are the result of the recent promotion of the Head of the Corporate Banking Division to CEO and the desire to use that opportunity to adapt the bank’s structure to the changing business conditions. “In the normal course of events, the Corporate Banking Division is responsible for handling the largest corporations in the economy, and the organisational change will make it possible to better focus on these customers,” says Itskovitch. “The deteriorating economic forecast and its influence on profit require the bank to take appropriate measures. The board of Bank Leumi le-Israel will no longer deal with credit approval, so the structural change is especially appropriate.”
Bank Leumi has already established itself as a leading expert in the private banking sector, and was wise enough to prepare itself for increasing competition for private banking assets some time ago. “We are considered one of the best banks in this field in Israel, and we focus systematically on the relevant market segments,” says Itskovitch. “Survey after survey has indicated that the service at Bank Leumi Israel receives the highest grade from our customers. We have excellent managers, advisors and services that offer our customers unique products and opportunities. In addition, the bank has excellent computer infrastructure supporting our private banking services.”
Itskovitch is in no doubt the bank will continue to invest in keeping its competitive edge over time, as the recent global and economic downturns have suggested. “The net profit of the Leumi Group was $495m in 2011, compared with a profit of $670m in 2010, and while there is no doubt that global monetary developments influence the Israeli economic forecast, and by definition the local banking industry, we passed the previous crisis comparatively well, compared to other countries, including those in Europe and the US.”
However, Itskovitch stresses the bank isn’t about to let its guard down any time soon: “Our most recent assessment has concluded that the current deterioration in Europe could affect us more than previously thought,” he says. “In addition, regulatory capital requirements for banks are increasing significantly throughout the world, including in Israel, and meeting these requirements necessitates preparation. It’s clear that the ability to broaden one’s activities is affected by regulatory capital requirements. All this will, without doubt, have an effect on the profit of the Leumi Group.”
Embracing the present
Itskovitch advises on needing to adjust to the fact that the yield the global banking system was accustomed to in the past will not return: “I anticipate that one digit yields of return on equity are more likely than the two digit yields customary prior to the crisis,” he says.
Looking to continue its international presence, Bank Leumi announced in November 2011 that it will be acquiring the entire outstanding share capital of Bank Safdié SA, a private bank located in Geneva, with operations, among others, in Zurich, Lugano, Luxembourg and a representative office in Israel, and plans to integrate it into Bank Leumi Switzerland.
The merger is expected to strengthen the standing of the Swiss subsidiary, and make it a leading private banking brand among Israeli banks active in Switzerland. “A bank which isn’t an adequate size will not be able to achieve adequate and stable profitability,” says Itskovitch. “We had to confront the outlook that banks with assets under management of less than $10bn will find it hard to achieve adequate profitability over time. When an opportunity presented itself to us, Bank Leumi purchased Bank Safdié, which increased the assets of Bank Leumi Switzerland significantly. The synergies of both banks will enable Bank Leumi Switzerland to be more competitive within the industry and improve profitability.”
Itskovitch believes that Bank Leumi Switzerland is preparing for increased competition, and adapting to the new regulatory requirements that are on the horizon will ensure continued functioning of the subsidiary, and is another step in establishing Leumi as a leading bank in the international arena. “We have no doubt about its contribution to expanding the range of services we provide to our international customers and that it will strengthen the standing of Bank Leumi Switzerland as a leading financial institution,” says Itskovitch. “There are no current plans to expand into other countries in Europe in the next few years, so the bank will focus its efforts on its current subsidiaries.”
Despite holding off on further expansion in Europe at present, Bank Leumi Luxembourg is a basis for activity in the continent as the country is part of the EU, enabling the bank’s representatives to act in the region’s countries under the European passport umbrella.
“Various options are being considered to expand Luxembourg’s activity in fields in which the country has a significant advantage, such as fund management and SICAVs,” says Itskovitch. “Due to its efficiency, the Luxembourg office has been profitable over the years, and joins the other international subsidiaries as a strong presence in the market.”
The Luxembourg subsidiary joins other big players in the market, including Bank Leumi UK, a commercial bank that focuses on the middle market and who turned over a net profit of £12.1m in 2011. “The subsidiary in the UK has developed additional fields outside of its traditional realm of expertise (real estate financing) in recent years,” says Itskovitch.
“These new areas include ABL, custodian services in Jersey, commodities financing and funding for media and films. This enhanced expertise enables Bank Leumi UK to choose its customers meticulously and to maintain a strong and healthy credit portfolio.” Another field in the UK which Leumi intends to progress in is local private banking, and the bank has started allocating resources into this area.
At Bank Leumi’s US subsidiary, a new development strategy has recently been approved. “Bank Leumi USA is essentially a commercial bank with the private banking function of a supplement, actively raising funds,” says Itskovitch. “The plan has been put in place to allow Bank Leumi USA to increase its efforts to strengthen its local banking activities by focusing on developing relationships with commercial clients in order to provide full customer service and to be the clients’ primary bank.” Itskovitch says that under this approach, the bank expects to raise increasing funds from local sources.
Managing finance on the move
Bank Leumi is now able to offer customers the ability to manage their finances on the go, with their new upgraded app for iPads, after a successful two month pilot period. The application allows customers to receive information, carry out transactions and track past payments in a simple, user-friendly way. The simple format also makes it possible to examine transactions and account balance, and joins the wide range of mobile services offered by the bank.
“Today’s banking environment is dynamic and highly competitive,” says Itskovitch. “In the past two years, there has been an increase of over 2,000 percent in digital usage by customers and Leumi is looking to grow in the changing market environment. The flexibility of the web and mobile technologies offers unprecedented opportunities for the bank to reach out to its customers.”
Itskovitch believes the bank can no longer take a lifetime relationship with its customers for granted and has to look to new ways to foster relationships in order to retain customer loyalty: “The iPad application joins the wide range of mobile services offered by Leumi, which include the Digital Wallet iPhone and Android applications already used by hundreds of thousands of customers, and we continue to maintain our position as a global competitor as such,” he says.