The Israel�s bank sector faced a wave of merger and acquisition activity through out the last week. The developments could impact local bank financing the diamond industry. The Israeli government completed the sale of a 9.99% stake in Bank Leumi, which finances about 20% of Israel�s diamond sector. It is also involved in diamond lending in New York. The combined activities in Israel and New York give the bank maximum l exposure to the diamond industry then any other Israeli bank.

The implication of this step on other banks diamond lending activities is uncertain. A consortium made up of Gabriel Capital and Cerberus Capital Management will be new owners. They do not seem to have any connection with the diamond industry. Gabriel Capital and Cerberus Capital Management, both US holding funds, have the option to buy an additional 10.1%, making it the largest shareholder if it exercises the right. �Diamond banking requires a high level of confidence and trust from a bank�s senior management about the way of doing business. As long as there are no major changes within the senior management of the bank, no significant change in Leumi�s policy towards the industry are expected," said an industry source.

In addition to the developments at Leumi, Discount Bank and the owners of Union Bank have entered into negotiations on the purchase of Union Bank. The intention of potential purchasers on whether to merge Union Bank within Discount, or to keep it as a separate subsidiary, is still unclear. Union Banks share of the total debt of the Israeli diamond industry is about 32%, and Discounts is around 28%. The purchase, or merger, will bring Discounts stake of Israeli diamond debt to about 60% (about $1.3 billion), overtaking Leumi and creating a significant concentration. The level of comfort Discount Bank�s senior management will have doubling its exposure to the diamond sector as a by-product of the purchase or merger is unclear.