Leumi's Swiss unit receives $60 million insurance payout
Insurers will cover $60 million - 60 percent - of the damage Bank Leumi's subsidiary in Switzerland suffered as a result of embezzlement in 2001.
Insurers will cover $60 million - 60 percent - of the damage Bank Leumi's subsidiary in Switzerland suffered as a result of embezzlement in 2001. At the time, the bank reported damages from the scheme by then-senior executive Ernst Imfeld at $100 million and made provisions for that amount.
The bank agreed to the 60-40 compromise with its insurers, concerned that a lengthy lawsuit for the total claim could cost the bank dearly in years of legal fees and valuable resources tied up in courts. The insurers will be paying the sum immediately, under the compromise reached with the bank.
Leumi Switzerland will post revenue on the compensation in its Q4 reports, but not for the entire sum. The bank apparently prefers to create an internal reserve until the affair is concluded instead of recognizing the entire amount. Swiss accounting regulations allow this practice, while Isreli regulations do not. Swiss regulations forbid recognizing monies until they are actually in hand. However, provisions must be made for the entire sum of the damages immediately.
The bank and its insurers agreed that Leumi Switzerland could continue to collect from Imfeld and other third parties for the affair, some of which would be transferred back to the insurers. It is impossible at the present moment to estimate if and when any money could be collected.
At the time, Bank Leumi stated that Imfeld did not take the money for himself, but acted without authorization in the accounts of customers, causing them losses that added up to $100 million. However, the bank suspects some of the money did leave the bank, and Leumi intends to try to trace it.
Insurance market sources noted that this is the largest payout on any Israeli banking insurance policy. They said insurers tend to raise obstacles before paying compensation of this scope and to conduct investigations that can take years. Israeli banks buy their insurance on the London insurance market, particularly from Lloyd's. They pay several millions of dollars annually, premiums that have risen in recent years as claims have increased.
Insurers have recently begun raising the deductible on Israeli policies and limiting the terms of the policies.
Leumi Switzerland netted SF2.8 million in the second half of 2002, against SF8.9 million in the parallel half of 2001.
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