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Bank Leumi revenues increase, but profits decline for Q2 By Tal Levy Tags: Bank Leumi, Israel Bank Leumi, the only bank in which the state is still the controlling shareholder, yesterday published its second quarter reports, which show a decline in profits despite increased revenues. While Leumi's second quarter revenues from the interest charged on credit grew by 8%, to NIS 1.953 billion, profits from regular operations declined 30%, to NIS 639 million. Despite that double-digit slump, net profits slipped only 2.3%, to NIS 889 million, as this figure includes a one-time capital gain of NIS 250 million from the sale of a 20% stake in the bank's credit card company, Leumi Card, to businessman David Azrieli, for NIS 360 million. In the first half of 2008, Leumi generated capital returns of just 11.5%, down from 17.9% in the parallel period last year. In annual terms, the return on net profits was 14.1%, compared to 21% in the first half of 2007. Leumi's second quarter profits were dragged down mainly by high provisions for doubtful debts - NIS 316 million, or eight times the figure in the same quarter last year. Leumi's reports state that these provisions are "for a limited number of clients," following a debt restructuring arrangement with microchip manufacturer Tower Semiconductor. Leumi's total provisions for doubtful debts now amount to NIS 9.055 billion, or 4.45% of the total credit extended by the bank to the public. After the deduction of the provisions for doubtful debts, Leumi's revenues were down 7.5% compared to the parallel quarter, to NIS 1.637 billion. Advertisement The bank collected NIS 832 million in service charges, up slightly over last year, but investments in shares incurred losses of NIS 44 million, down from profits of NIS 143 million in the parallel. Other revenues (NIS 76 million, down from NIS 162 million) came from commissions paid to the bank for the sale of financial products, and from provident fund operating fees. Operating costs at Leumi, which include salaries and maintenance, were 2.9% lower than last year, at NIS 975 million. Leumi recorded second-quarter provisioning of NIS 82 million for investments in asset-backed securities (NIS 52 million after taxes). Since the onset of the global credit crisis, Leumi has recognized permanent losses of NIS 120 million and temporary losses of NIS 245 million (NIS 155 million after taxes). In the first quarter of 2008, Leumi provisioned NIS 244 million for doubtful debts, with over NIS 200 million of that sum stemming from a debt restructuring agreement with Tower. Although the bank never mentions specific customers, on August 20 Tower admitted that Leumi and Bank Hapoalim would convert combined debt of $200 million ($100 million each) into equity capital notes from Tower, which the banks could exchange for ordinary shares representing a 17.4% stake in the company for each bank. The repayment of the remaining principle owed to the banks (about $200 million) has been postponed until September 2010. The exact impact of this arrangement on Leumi's second-quarter results is unclear. Leumi owns an interest in non-financial assets via its subsidiary, Leumi & Co., whose portfolio includes holdings in HOT Telecommunication Systems, Cellcom Communications, Migdal Insurance, Paz Oil and its star holding, 17.96% of The Israel Corporation. The Israel Corporation owns the cash cow, Israel Chemicals - whose second quarter profits were a healthy $703 million. Profits from Leumi's included companies contributed NIS 193 million to the bank's bottom line, more than four times the figure for the same period in 2007. The figure for the first half of 2008 was NIS 280 million - more than triple the contribution for the parallel period. NIS 200 million of those profits came from The Israel Corporation alone. The bank service charge reforms ordered by the Bank of Israel will cost Leumi an estimated NIS 85 million this year. The reforms reduced the number of service charges, and made it easier for account holders to compare the charges at the various banks. Still, 90% of the transactions made by households are 10 basic transactions, most of which now carry higher service charges. Bookmark to del.icio.us   World War III A top Iranian general says an attack on Tehran would ignite a 'world war'. Raising the price Hamas says won't compromise, Israel must free 1,000 prisoners for Shalit.

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