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The state's shares in Bank Leumi and Israel Discount Bank could soon be sold through the Tel Aviv Stock Exchange. Finance Minister Yuval Steinitz recently ordered Accountant General Shuki Oren, who also chairs MI Holdings, the government company that manages state-owned assets, to prepare a proposal for selling the controlling stake in Leumi and the state's remaining shares in Discount.

The shares, which are worth about NIS 4 billion together, could go on sale before the end of this year. It isn't certain, but is probable, that the shares will be sold through the TASE.

The state owns 11.46% of Leumi's shares, which have risen 76% since the beginning of 2009. The bank's market cap is now NIS 20.3 billion (Bank Hapoalim's is NIS 17.2 billion, by the way.)

The state's share of Discount is 25%, but this is not a controlling stake. Discount is worth NIS 7 billion in market cap terms, after gaining 120% this year, making the state's shares worth about NIS 1.75 billion.

Proceeds from the sale of the shares will help cover the treasury's budget deficit.

Capital market sources expect MI Holdings to sell the bank shares on the bourse, because the global economic crisis has reduced the number of potential candidates who could buy the controlling stake in Leumi. Candidates would need high equity and would have to reveal their personal business dealings. Moreover, recent events in Israel's banking system have shown that controlling shareholders are not necessarily the address when bank regulators need them.

One example of this was when Bank Hapoalim's controlling shareholder, Shari Arison, refused the Bank of Israel's demand to oust Hapoalim chairman Danny Dankner. The Bronfman-Schron group, which controls Discount, was similarly unresponsive to the central bank's heavy hints concerning a rights issue at the bank.

MI Holdings will be able to sell the controlling stake in Leumi on the bourse thanks to the so-called Marani Law (named after Ohad Marani) - Amendment 13 to the Banking Ordinance, concerning situations in which a bank has no controlling shareholder. More amendments are still required regarding the appointment of board members, but the Bank of Israel has agreed to submit such amendments, which will correct the shortcomings of the Marani Law and facilitate the sale of the controlling stake via the TASE.

The Discount shares are what remains of the state's stake after the Bronfman-Schron group purchased 26% of the bank from the state in 2005. The group had a four-year option to buy the rest of the shares, but let this option expire after the share's price plummeted in 2008. Since then, the share has recovered somewhat, but is still trading at the lowest equity multiple of any Israeli bank.