Discount Bank Explores Merger with Mercantile Bank, Plans Branch Closures and Job Cuts

Discount Bank has officially authorized its management to explore a merger with Mercantile Bank, a fully owned subsidiary. The board stated that the merger aims to strengthen the group's competitiveness and adapt its operational structure to current banking challenges, including technological and operational demands. The move is expected to improve efficiency, operational flexibility, and resource allocation, ultimately creating value for all stakeholders.

Mercantile Bank, which employs approximately 1,500 staff across 74 branches, primarily serves Arab, Haredi, and small-to-medium business sectors. It has faced declining revenues and profits, with net interest income dropping 6% to 504 million shekels in Q1 2026 and net profit falling 13% to 179 million shekels. Discount Bank, with 6,700 employees in Israel, currently holds the least efficient cost-to-income ratio in the banking sector at 48.3%, compared to Bank Leumi's under 30%.

Industry analysts view the merger as a logical step to reduce duplicate costs, although some institutional sources remain skeptical about short-term savings. The merger could lead to significant workforce reductions and branch closures, contingent on agreements with employee committees. Discount Bank's CEO Avi Levi previously signaled potential cuts and a freeze on bonuses amid challenges posed by artificial intelligence and operational costs.

The board emphasized that the merger process will seek to preserve Mercantile's brand and strategic expertise while integrating its strengths with Discount Bank's products, technologies, and infrastructure. Discount Bank also holds other assets, including Discount Capital, Discount New York, and a majority stake in the PayBox payment app. The bank is currently awaiting regulatory approval regarding the sale of its 72% stake in the credit card company CAL to the Union Group and Harel Insurance.

Discount Bank's stock has underperformed compared to other major Israeli banks, declining about 6% over the past year, while peers like Leumi and Hapoalim rose by 13%. The merger is seen as a strategic move to enhance competitiveness and operational efficiency in a challenging banking environment.