Thu Mar 3, 2011 10:26am EST

http://www.reuters.com/article/2011/03/03/lebanon-bank-idUSLDE7221KS20110303

BEIRUT, March 3 (Reuters) - A privately owned Lebanese bank is expected to be sold to another local bank after the U.S. accused it of involvement in  money laundering and drug trafficking, sources familiar with the deal said on Thursday.

The sources said Beirut-based Lebanese Canadian Bank (LCB) had been put up for sale after the U.S. Treasury Department refused to back down on a decision to ban the bank from dealing in dollars.

"The decision has been taken. The bank will be sold. We still do not know who is going to buy the bank, but definitely it is not going to be one of the three big (Lebanese) banks," one of the sources told Reuters.

Media reports have said the bank is likely to be sold for between $500 million and $600 million.

Another source said four banks were being considered to buy LCB -- Byblos Bank (BYB.BY), Societe Generale de Banque au Liban, Credit Libanais and Lebanese French Bank.

A banking analyst said selling the bank aimed to shield the banking sector's reputation.

Although Lebanon does not encourage mergers between its top 11 banks, a banking source said the Central Bank was looking for a bank big enough to raise funds for the purchase.

The U.S. Treasury Department last month designated LCB a "primary money-laundering concern", saying it was involved in a money-laundering and drug-trafficking operation with ties to Shi'ite militant group Hezbollah. [ID:nN10290735]

The bank denied the charges, and Lebanon's Central Bank governor Riad Salameh said LCB was well managed and complied with international laws on money laundering.

LCB is ranked as the eighth-largest Lebanese bank, with more than $5 billion in assets, 35 branches in Lebanon and an office in Montreal.

The U.S. Treasury announcement sent shock waves through Lebanon's banking sector, which helps the state meet borrowing needs to finance a public debt equivalent to 129 percent of gross domestic product.