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Opti-Money is a decision-support system for allocating assets that was developed at Bank Hapoalim, Israel's largest bank. Based on customer- and market-specific inputs, we solve a modified Markowitz-type nonlinear programming problem to produce optimal tailor-made investment portfolios in terms of asset classes. In its five years of operation, this mature system has provided excellent quantifiable results for the bank and its customers. In 2002, we held some 133,000 consultation sessions with 63,000 customers in which we used Opti-Money. Apart from the considerable prestige the system gained through its track record and uniqueness in the Israeli banking sector, it obtained net income 88 percent higher in customer accounts that used Opti-Money than in those that did not. The annual earnings over and above benchmarks to customers who follow the investment advice provided by the system total US$244 million. In 2002, the annual income for the bank directly attributed to Opti-Money exceeded US$31 million.
Key words: financial institutions: banks; decision analysis: applications.
The Bank Hapoalim Group is Israel's largest banking group and the leading force in virtually every area of banking and financial activity. As a universal bank, established in 1921, the bank provides a wide range of banking and financial services and products to retail, private banking, commercial, and large corporate customers in Israel and abroad. In Israel, the group provides these services through a network of 327 branches and nine regional business centers and through the offices of domestic subsidiaries, including four commercial banking subsidiaries, financial companies for investment banking, mortgages, credit cards, mutual and provident funds, trust services, and portfolio management. Worldwide the group operates through 37 branches, offices, and subsidiaries in major financial centers in North and South America and Europe, focusing on trade financing, corporate and syndicated financing, and private banking. The group also owns interests in a number of nonfinancial companies in insurance, tourism, and real estate. As of December 31, 2002 the group had US$55.4 billion in assets and US$2.8 billion in shareholders' equity. Domestically, the bank has a market share of over 30 percent; globally, Bank Hapoalim ranks as No. 127 in the world. The bank is rated A2 by Moody's and BBB+ by Fitch.
Background Information
In 1995, several factors converged that caused us to conceive the...