Israel Discount Bank (TASE: DSCT) has a new labor agreement. Chairman Yossi Bachar and CEO Reuven Spiegel today signed the agreement with workers committee chairman Rikki Bachar. The agreement will come into effect next year. It includes a substantial reduction in salary costs, amounting to tens of millions of shekels, and, in the future, of hundreds of millions of shekels.
"The agreement is a breakthrough in labor relations at the bank," said Spiegel. Yossi Bachar added, "The agreement reflects a new spirit of cooperation."
The parties also agreed that, toward the end of 2011, there will be an early retirement plan with increased severance compensation for 350-400 employees at a cost of about NIS 1 million per employee. The bank will make a NIS 400 million provision for the plan. Employees will also receive a one-time 6.5% pay hike in January 2012 for 2011-12.
"We reached understandings with management on the problems that concerned us. The agreements will enable us to strengthen our home, Discount Bank, and to preserve our future as employees," said Rikki Bachar.
The agreement was signed after almost six months of intensive negotiations between Yossi Bachar and Speigel and Rikki Bachar aimed at finding a stable long-term solution to the bank's efficiency problem, which is the worst in the banking system. In contrast to previous agreements at the bank, which were accompanied by a ritual of labor sanctions, strikes, and confrontations between management and employees until the final signing, in the current agreement, the parties conducted themselves with openness and cooperation.
Discount Bank estimates that the salary agreement will result in NIS 160-180 million in savings in 2011-12. It expects the retirement plan to achieve an additional NIS 100-150 million in savings in 2012. The bank will make a provision for the plan, and it is believed that a third of the cost will be posted to a capital fund and two-thirds will be in the profit and loss statement and reduce the bank's net profit for 2011 by NIS 160 million. This will reduce the bank's capital adequacy ratio by 0.25%, but the bank still expects to meet its core capital adequacy ratio target of 7.5% by the end of the year.
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