Israel's biggest banking company has called its investment in the 4-year-old Signature Bank one of its most successful foreign ventures ever, but now the New York bank is growing so fast that it is straining Bank Hapoalim's resources.
The Israeli bank said Monday that it intends to sell its 60% stake in the $3.4 billion-asset Signature in a public offering. Otherwise it would have to invest tens of millions of dollars to provide Signature with the capital it needs to grow, making it difficult to maintain its majority stake.
Israeli banking regulations require that banks own at least 50.1% of their subsidiaries.
One observer described the pending stock sale as a "vote of confidence" in Signature president and chief executive Joseph J. DePaolo.
Given the high level of merger-and-acquisition interest in Northeast banks, Bank Hapoalim could just as easily have sold Signature outright, said Peyton Green, who covers Signature for First Horizon National's FTN Midwest Research.
By selling its stock instead, Mr. Green said, Bank Hapoalim "gives management a chance to continue to run the company and grow it to the next level."
Signature's earnings for 2004, its first profitable year, rose nearly 1,100%, to $29.8 million. Mr. DePaolo said earlier this year that he expected earnings growth to continue in 2005 as the private-banking teams Signature hired last year began hitting their stride and booking loans.
Bank Hapoalim said it would sell the approximately 17.5 million Signature shares it owns in a public offering, though it did not indicate when the sale would take place. Signature went public in March 2004 and held a secondary offering six months later, raising a combined $160 million.
Investors seemed to be taken aback by Bank Hapoalim's announcement. In late trading Monday Signature's stock was down 7.4%, to $26.
Analysts speculated that investors viewed Bank Hapoalim's decision as an indication of some weakness at Signature, and not the result of its country's banking regulations.
Bank Hapoalim has been grappling with allegations of money laundering at a branch in Tel Aviv that surfaced this month, but it is unclear that the scandal had little to do with its decision to sell its Signature shares. Signature officials did not return phone calls.
Signature's business plan calls for hiring teams of private bankers and offering personalized service to affluent business owners and executives. It hired eight such teams last year and plans to add 11 in 2005, Mr. DePaolo said in a Jan. 27 conference call.
Pursuing that strategy, Signature expanded its loan portfolio by 51%, to $571 million, in 2004, and its deposit growth was even more impressive. Deposits were $2.58 billion on Dec. 31, 64% more than a year earlier.
The bulk of those were low-cost core deposits, Mr. Green said.
"Those are the hardest kind to get," he said. "When you can build that kind of a deposit base in such short order, you have to be doing something right. You can't find too many success stories to match Signature's."
Signature's two other analysts, Gary Townsend of Friedman, Billings, Ramsey & Co. and Avi Barak of Sandler O'Neill & Partners LP, declined to comment. Both Friedman and Sandler expect to play a part in the stock sale.
