Discount Loses 3.2% on NYinvestigation

Both Leumi and Israel Discount banks released glowing quarterly reports yesterday, but while shares in the former gained, Discount's stock dropped 3.2 percent.

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Both Leumi and Israel Discount banks released glowing quarterly reports yesterday, but while shares in the former gained, Discount's stock dropped 3.2 percent. Investors may have been so impressed with Leumi's results that Discount shivered in the shade, but there seemed another weightier factor behind the drop.

The reason behind the share price may lie in a state attorney of New York investigation of a number of banks, including Israel Discount Bank of New York.

Discount's quarterly report included the following comment: "The U.S. attorney for the State of New York is conducting an investigation into a number of banks and financial institutions, among them Israel Discount Bank of New York, on matters concerning the transfer of money to a third state and Discount New York's behavior concerning debts arising from anti-money laundering laws. At the same time, the bank's department in New York is conducting an inspection concerning these and other matters. The bank is negotiating with the attorney of the State of New York to close this investigation in a civil arrangement, which would include a fine and a commitment to take steps to improve the bank's procedures and any faults that have been found."

Discount CEO Giora Ofer would not expand on these details in the bank's conference call yesterday.

In its third quarter, Discount Bank more than doubled its profit, netting NIS 217 million, an increase of 117 percent over the parallel.

The bank's return on equity reached 12.1 percent for the first nine months, up from 9.6 percent in the parallel. Discount attributed this primarily to a 9.6 percent increase in income from financing activities.

Provisions for doubtful debt sank 22 percent to NIS 201 million. Total operating income reached NIS 666 million, an increase of 26 percent. However, operating costs also increased considerably: wage outlays alone jumped 17 percent to NIS 680 million.

Discount reported netting NIS 569 million for the first nine months, up 34 percent.

Meanwhile, Bank Leumi also released third-quarter results yesterday, which was good news not only for the buoyant banking sector, but also for the Cerberus-Gabriel group, which is buying controlling interest in Leumi from the state for NIS 4.6 billion.

Leumi trounced analysts' expectations, reporting NIS 568 million third-quarter profits, 5.4 percent higher than the parallel.

Excluding one-time events and adjustment to deferred taxes, tax provisions for non-banking assets, and the net cost of Leumi's voluntary retirement program, the bank's quarterly pro forma profit (consolidated) was NIS 835 million. Analyst Alon Glazer of Leader & Co said that figure is even better than that presented by arch-rival Bank Hapoalim. He called the results of the two big banks a step up, saying they are in a completely different league than their smaller local rivals.

Nine-month net profit for Leumi shot up to NIS 1.7 billion, an increase of NIS 200 million from the parallel.

Return on equity was 15.2 percent from January to September, compared to 14.5 percent in the parallel. Third-quarter return on equity was 14.9 percent, slightly down from 15.2 percent in the parallel. Glazer said the return on equity without one-time events brings the figure to 21.6 percent, which is comparable to Citigroup's 19.5 percent.

Provisions for doubtful debt dived to NIS 166 million, showing that the bank managed to improve the quality of its credit portfolio. However, over the first nine months, its problem-debt provisioning increased by 12.3 percent, surpassing NIS 1 billion.

Income from financing activities after provisions for doubtful debt shot up 23 percent to NIS 1.6 billion, up from NIS 1.3 billion in the parallel.

Investors were clearly pleased with the results, and Leumi's stock gained 2.9 percent in local trade yesterday.

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