Subscribe to Print Edition | Tue., December 02, 2008 Kislev 5, 5769 | | Israel Time: 03:06 (EST+7)   Back to Homepage web haaretz.com Haaretz Toolbar Diplomacy Defense Jewish World Opinion National Print Edition Car Rental Books Haaretz Magazine Business Real Estate GA 2008 Travel Week's End Anglo File

Banks cut staff as profits plunge By Tal Levy Tags: israel news What a difference a year makes. In the third quarter of last year, Israel's five biggest banks presented a combined profit so large - NIS 2.6 billion - that howls of protest ensued. This time, the banks are hardly operating in the red, but the difference is vast and the banks are making moves to cut costs, including by cutting staff. However, government and bank officials hasten to stress that the stability of Israel's banks isn't in question, despite the steep slide in profits. Over at Bank Hapoalim, chairman Danny Dankner and chief executive Zvi Ziv are also accepting a 10% pay cut - next year, though, not this one. For the third quarter, the Big Five netted just NIS 662 million altogether, a drop of 75% from the parallel period in 2007. Advertisement You can't blame the drop on the public. The banks' collection of service fees remained unimpaired, actually rising 5% against the parallel quarter to NIS 3.2 billion. For 2007, the five big banks reported NIS 9 billion in net profit, and collected NIS 12 billion in fees. Fee collection was up 10% over 2006. Nor are the nine-month figures any comfort to Israel's bankers. The Big Five's earnings for the first nine months of 2008 fell 76% against the same period of last year, to NIS 1.9 billion. Nothing to sneeze at, but a miserable result compared with earnings the year before. What brought the bank profits low? A combination of factors, all of which ultimately arise from the financial turmoil in world markets. As the West slides into recession, Israel's economic growth has been slowing too, and that in turn forced the banks to narrow their spreads - meaning, the difference between the interest they pay on deposits and the interest they charge on loans (and your overdraft). Another factor is that companies and households are increasingly defaulting on debt, forcing the banks to make rising provisions for doubtful debt. Yet a third major contribution is direct exposure to various debacles abroad. Discount Bank for one wrote off NIS 860 million in the third quarter from its investments in Lehman Bros, the New York investment bank that collapsed, and in Washington Mutual. But other banks felt some pain on that front too. In general, banks make most of their money from the spread, that difference between the interest they pay and the interest they charge. They charge high interest and pay low rates. The difference is the bank's income from financing, and in the case of Israel's five biggest banks, financing income fell nearly 18% in the third quarter of 2008 against the parallel quarter, to NIS 5.8 billion. Israel's banks also do well from service fees, which have been the subject of heated public debate and Bank of Israel reforms. The banks supervisor's reform pleased nobody - not the public, which felt that key fees were higher after the reform, and not the banks. Yet as we see, their income from fees did not suffer. Wage costs remain onerous, by the way. The unions protecting bank workers have huge clout and the collective employment agreements include raises every year. Actually, wage costs dropped a little in the third quarter of 2008, but that's only compared with the third quarter of 2007, when bonuses were higher. Bookmark to del.icio.us   Boycotting Wagner The composer's works will remain a sensitive topic in Israel for many years. Bound for Gaza The Libyan ship is the most notable attempt yet to break the Gaza blockade.

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