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The First International Bank of Israel published its profit warning just two days before it is to issue its first-quarter results. One can assume the bank was aware of its situation weeks ago, so why did the bank wait so long to make the announcement?

The answer, it seems, is connected to the situation of Tevel and the hopes of the bank's management to see some hint of light in the cable company's tunnel situation. It is true that several other clients - including Gad Zeevi and Gilat Satellite Networks - are responsible for write-offs for doubtful debts, but Tevel's situation is the most volatile.

The banks, including FIBI, which lent a total of NIS 445 million to Tevel, have been conducting intensive negotiations with the cable company's shareholders for several weeks on a recovery plan. The banks' hopes to increase the involvement of Tevel's shareholders via an injection of capital are not materializing. The plans to merge the three cable companies are also not progressing at the necessary pace and there is increasing concern that Tevel's situation may deteriorate further.

In this situation, new assessments are made almost daily, swinging from optimism to pessimism. But at some point, decisions must be made - at least regarding the presentation of financial statements. The issuing of profit warnings in the local banking system is a rare phenomenon.

In fact, there have been no instances in recent memory of profit warnings from the major banks, with the exception of Israel Discount Bank, which has issued three such warnings in recent years. The link between Discount and FIBI is David Granot, who is currently the CEO of FIBI and was the CEO of Discount during the period of its profit warnings.

In 2001, following a huge write-off of NIS 434 million (compared to NIS 116 million the previous year), FIBI ended its unique role as a bank characterized by its high quality credit portfolio. It now joins the dubious ranks of banks that have become entangled in huge loans to problematic sectors and report losses on their bottom line. In the case of Discount, it was the real estate sector. In FIBI's case, it was the telecom sector. Discount has been weighed down by the real estate sector for four years already and still cannot see the light at the end of the tunnel. For FIBI, the crisis is just beginning.

What does the bank's loss tell us about the state of the banking system? FIBI is known as a bank of large borrowers and this is why it moved from profit to loss when just a few of these borrowers ran into trouble.

The larger banks - Bank Hapoalim and Leumi - also service Tevel and Zeevi, and make loans to other in the telecom sector, but they have a huge reservoir of households that can offset the losses from these borrowers and apparently will keep them operating in the black. But this doesn't mean that these banks are not also worried about the collapse of large clients that would force them to make huge write-offs during the coming quarters.