Leumi Pays First Dividend in 6 Years as Hapoalim Profit Slumps

Leumi profit was flat for quarter but makes payout after it exceed key ratio mandated by regulators.

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Banks, including Bank Hapoalim, are shifting credit away from business lending.

Bank Leumi, Israel’s second-largest lender, said on Thursday it was paying its first dividend in six years as it reported a flat profit for the quarter. Bank Hapoalim, meanwhile, reported a 76% drop in earnings due to the cost of a U.S. tax probe and big provision for credit losses.

Leumi said it was able to pay the dividend, set at 20% of quarterly earnings, after its tier 1 capital ratio exceeded the regulatory minimum of 10.25%. On Thursday, Leumi said the ratio – a measure of a bank’s financial strength – reached 11.15% at the end of 2016, up from 9.58% a year earlier, an increase mainly due to one-time gains.

Its fourth-quarter net profit rose 3% from a year earlier to 443 million shekels ($122 million), which put it below a forecast of 468 million shekels in a Reuters poll of analysts. Net interest income rose to 1.87 billion shekels from 1.73 billion, while credit loss expenses climbed to 46 million shekels from 33 million a year ago.

Shares of Leumi finished down 0.5% to 16 shekels.

Hapoalim’s big earnings drop came as no surprise because the bank had issued a profit warning last week due to $68.5 million in provisions it had to take in connection with an investigation by U.S. authorities into suspected tax evasion by the bank’s U.S. clients. Hapoalim has already set aside $120 million for the probe.

Leumi faced the same charges and paid $400 million in penalties two years ago. Mizrahi Tefahot, Israel’s fourth-largest lender, is also under investigation.

Profit at Hapoalim was also hit by credit loss expenses of 469 million shekels, more than three times the 147 million it had a year ago. Hapoalim attributed most of the increase to a borrower in New York and three others in Israel.

As a result, the bank’s net profit plunged to 138 million shekels in the fourth quarter, from 586 million a year earlier. Excluding one-time items, net profit was 937 million shekels.

“We have worked to correct the mistakes of the past and strengthen the public’s trust in the banking system and in Hapoalim in particular,” said CEO Arik Pinto.

Shares of Hapoalim, Israel’s biggest lender, finished down 0.2% at 22.08 shekels. The bank declared a dividend of 41 million shekels, or 30% of net profit, for the quarter.

Barclays analyst Tavy Rosner told Reuters that the main influence on Hapoalim’s share price would be settling the U.S. investigation. “In our view this would pave the way to a dividend payout increase from the current 30% to 50%,” he said.