Bank Otsar Ha-Hayal

The origins of Bank Otsar Ha-Hayal lie in the organized activity of Jewish soldiers from the Yishuv who enlisted in the British Army during the Second World War. While still in Europe, these soldiers established a Center for the Diaspora and published a Hebrew-language newspaper called LaHayal.[5] They later founded Otsar Ha-Hayal and the Association of Discharged Soldiers in Israel.[5]

The company began operating in 1946.[2] Its early shareholders reflected its origins: discharged soldiers who had served in the British Army during the war, together with Israel Defense Forces career personnel, collectively held approximately 57% of shares.[2] Discharged soldiers acquired their stakes by transferring their savings funds to the company, while career personnel purchased shares through regular saving.[2] Other shareholders included Keren Hayesod with roughly 36%, managers holding founder shares with about 6%, and the state with approximately 1%.[2]

In 1970, the company received a license to operate as a bank and formally changed its name to Bank Otsar Ha-Hayal Ltd.[1] Its 2009 annual report described it as a licensed banking corporation under Israel's Banking (Licensing) Law, 5741–1981.[1]

In its early years, Otsar Ha-Hayal functioned as a specialized lending institution focused primarily on veterans, military personnel, and military families.[2] Principal borrowers included discharged soldiers from the Second World War, discharged IDF personnel, settlement communities that included such veterans, career IDF personnel, and security personnel who had been injured in service.[2] Loans were generally issued for terms of up to four years, though the company also provided short-term working-capital loans to institutions.[2]

Funding came from multiple sources: the company's own capital, a special loan fund for injured people administered on behalf of the Defense Ministry's Rehabilitation Department, government-participating housing funds for disabled people and discharged soldiers, joint funds with cooperative bodies including Nir Cooperative and the kibbutz federations, deposits from provident funds, and deposits from soldiers and officers.[2] When disbursing rehabilitation loans on behalf of the Defense Ministry, the company acted purely as an agent—the Ministry determined recipients and loan terms and bore the full risk of repayment.[2]

Between 1947 and 1954, the company issued long-term loans totaling 6.781 million Israeli pounds: 1.696 million to discharged soldiers, 1.366 million to IDF personnel, 937,000 to settlement communities, and 2.782 million to injured people.[2] For the financial year 1954/55, it reported a business turnover of 42.117 million pounds, a surplus of 22,000 pounds, and a staff of 33 employees.[2]

An Encyclopedia.com entry on Bank Hapoalim lists Bank Otsar Hahayal Ltd. among Hapoalim's principal subsidiaries at an ownership figure of 50.1%, but does not state when that figure applied.[6]

By the time of the 2006 sale, Bank Hapoalim held a substantially larger stake. Government policy had long targeted this concentration: decisions adopted in February and May 1993 called for separating Bank Otsar Ha-Hayal from Bank Hapoalim as part of a broader effort to increase competition and reduce concentration in Israeli banking.[7] A September 2004 inter-ministerial report noted that those decisions had so far been implemented only for the separation of Union Bank from Bank Leumi. It recommended that Bank Hapoalim sell its Otsar Ha-Hayal holdings by the Bank of Israel governor's permit deadline of December 31, 2005, arguing that the sale would make a substantial contribution to banking competition.[7]

In January 2006, Bank Hapoalim agreed to sell its stake in Otsar Ha-Hayal to the First International Bank of Israel for NIS 703 million, a price reported as 185% of the bank's equity—the highest price paid for a bank in Israel at that time.[8] The sale followed more than a decade of government pressure dating to the 1993 competition decisions.[8] At the time of the agreement, Hapoalim held approximately 68% of the bank, while Hever held about 24%.[8]

The acquisition was completed in August 2006 for approximately NIS 702 million, with First International taking control of 68% of Otsar Ha-Hayal.[3] A 2012 Knesset committee report placed the transaction among acquisitions of banking subsidiaries by medium-sized banking groups, noting that the broader trend helped reduce Bank Hapoalim's share of the banking system and strengthen those groups.[9] The purchase added approximately 200,000 customers to First International's base, bringing the combined group to roughly 450,000 customers.[8]

A January 2010 decision by the Israel Antitrust Authority placed Otsar Ha-Hayal within the First International Group alongside First International itself, Bank Poalei Agudat Israel (PAGI), Yubank, and Bank Massad.[10] The decision confirmed that First International, PAGI, and Otsar Ha-Hayal already held pension-advice licenses at that time.[10]

Throughout its independent existence, Otsar Ha-Hayal operated as a retail bank with a distinctive focus on the Israeli security establishment. By 2008, 45% of its customers were career service members and IDF retirees, and 14 branches—about one-third of its network—were located on military bases.[11]

The bank won a Ministry of Defense tender in December 2008 to provide credit and banking services to defense-system employees, discharged soldiers, and Rehabilitation Department beneficiaries; the seven-year agreement began in June 2009.[1] Eligible customers included career-service personnel and IDF retirees, civilian IDF employees, Ministry of Defense employees and retirees, and eligible rehabilitation-benefit recipients.[1] Under the tender, the Ministry set interest terms for loans to eligible customers, and the bank held the right to operate branches at IDF camps.[1]

By 2009, the bank conducted its principal business through 47 branches and extensions, including 14 in or near military camps, and also served private-banking, small-business, and commercial clients.[1] Its retail division offered personal banking, credit, deposits, payment cards, and securities services.[1] The bank's share of the Israeli banking sector stood at 1.3% by both credit volume and public deposits, based on figures for September 2009.[1]

In November 2015, Otsar Ha-Hayal won a new Ministry of Defense tender to provide loans and banking services to eligible members of the security establishment, under an agreement running from June 2016 for seven years.[12][4] At that time the bank operated 48 branches, 14 of which were on IDF bases, and served security personnel, their families, and members of the Hever club.[12] A September 2017 agreement with Hever extended arrangements for members' accounts through February 2020.[4] By 2018, the bank's sector shares had grown modestly to approximately 1.4% by credit volume and 1.5% by public deposits.[4]

In January 2018, Hever exercised a put option dating from the 2006 sale agreement, requiring First International to buy its remaining 22% holding for NIS 339 million and bringing the parent bank to complete ownership of Otsar Ha-Hayal.[13]

In September 2018, the boards of both First International and Otsar Ha-Hayal approved a merger plan.[14] The stated intention was to preserve Otsar Ha-Hayal as an independent customer-facing brand, retain its branches and employees, and maintain its retail and security-sector expertise and agreements with the Ministry of Defense and Hever.[14] The intended legal merger date was December 31, 2018, or later if required procedures were not complete.[14]

A labor dispute and strike followed the merger announcement. In December 2018, management and the employees' committee reached an agreement to proceed: Otsar Ha-Hayal's roughly 700 employees were to be absorbed into First International and transition to its salary agreements by the end of 2019, while employees who chose to leave would receive enhanced severance and a retirement-target grant.[15]

The merger was completed on 1 January 2019.[4] Otsar Ha-Hayal's assets and liabilities transferred to First International without consideration, and Otsar Ha-Hayal was liquidated without winding up and removed from the Companies Registrar's records.[4] A labor court ruling in 2019 ordered First International to honor collective agreements reached by Otsar Ha-Hayal's employees' committee before the merger and to negotiate with that committee over the rights of integrated employees.[16]

Customers were notified that services would continue without interruption at Otsar Ha-Hayal branches, with no change to account, branch, or bank numbers.[17] Existing payment methods—including debit cards, checkbooks, account-debit authorizations, and IBAN codes—remained unchanged.[17] Where First International's applicable tariff was higher than Otsar Ha-Hayal's, the existing lower price was to continue for a transition period of at least three months.[17]

Following the legal merger, the Otsar Ha-Hayal name continued as a distinct banking brand within First International.[4][17] The official website presents Otsar Ha-Hayal as First International's banking brand, with a dedicated security-forces section offering tailored products.[18] These include a Hever account for career-service personnel, IDF retirees, and widows of IDF personnel; an Otsar HaBitachon account for security-force employees; an account for members of the Otzma organization for disabled IDF veterans; and an account for qualifying family members of security-force personnel.[18] The 2019 Competition Tribunal judgment described the bank's role as a retail institution focused on specific population groups, providing them nearly the full range of banking services.[19]