Bank Leumi Turns in NIS 259 Million Fourth-quarter Loss

Hapoalim net also down, seeks to pay dividend

Bank Leumi yesterday reported a giant NIS 259 million loss attributable to shareholders for the fourth quarter of 2012, sending its share price falling.

The loss compares with NIS 618 million in net earnings the same time a year earlier, and with the NIS 100 million loss Leumi had forecast for the quarter earlier this month.

Leumi took about NIS 400 million in charges in connection with an investigation by U.S. tax authorities into the bank’s alleged assistance to American customers for dodging taxes. That included NIS 60 million spent on lawyers, accountants and consultants to deal with the probe, plus a NIS 340 million provision against a possible penalty.

Leumi owns 18% of the conglomerate Israel Corp, whose quarterly loss widened to $196 million from $25 million.

To wrap up the year, Leumi posted a net profit of NIS 931 million, down 50% from 2011 and representing a 3.8% return on capital − the lowest in Israel’s banking industry. The bank sustained a sharp increase in credit losses from the business sector, recording provisions for doubtful debt amounting to NIS 933 million for the year, nearly three times the NIS 312 million in 2011.

The bank’s shares dropped 3.2% to NIS 12.70 in Tel Aviv Stock Exchange trading yesterday on turnover of NIS 245 million, nearly a fifth of the market’s total. That leaves them virtually unchanged so far this year, compared with 1.1% for the TA-Banking index.

“Leumi’s real situation is better than what appears on the bottom line of its financial report,” chairman David Brodet told a press conference called to mark the report’s release. “The bank’s core businesses are doing well − so well, in fact, that they permit us to set aside hundreds of millions of shekels in provisions and still profit.”

Brodet claimed some of the provisions could have been prevented at this stage, but that the bank was concerned with the long-term implications rather than the short-term. Another major expense impinging on Leumi’s annual profits was an estimated NIS 323 million for an early-retirement program.

Hapoalim, meanwhile, reported NIS 652 million in net profit for the fourth quarter of 2012, dipping from NIS 672 million the same time in 2011, and said it would seek permission to pay a dividend to shareholders.

Annual earnings amounted to NIS 2.5 billion, representing a 7% decline from 2011 and a 10.1% return on capital.

The bank’s core tier 1 capital ratio to risk-weighted assets rose to 8.9% at the end of 2012, or 8.5% as defined under new Basel III standards, up from 7.9% a year earlier. This brings the 9% Basel III target set by the Bank of Israel for 2015 within close reach.

“In light of the results and increase in tier 1 capital, the bank intends to ask the Bank of Israel to approve a dividend distribution,” said chairman Yair Seroussi at the bank’s press conference.

Banks currently require special permission to pay dividends from the Bank of Israel’s banks commissioner, whose main consideration is the bank’s ability to meet its capital adequacy targets.

At the current rate, Hapoalim appears set to reach the 9% goal by the second quarter of 2013. “The investors expect dividends, and I’m talking about all the investors,” explained Seroussi. “We are certain we will meet the capital adequacy targets.”

Fourth-quarter earnings were above expectations of NIS 602 million in a Reuters poll of analysts. Nevertheless, Hapoalim shares dropped 0.9% on the TASE to NIS 16.42. They are up 2.9% so far this year.

Loans extended to the public increased by just 1.1% in 2012, including a 9.9% increase in mortgage lending,.Bad debt provisions totaled 0.39% of the credit portfolio, compared with 0.5% in 2011 as the bank colledted on loans earlier marked as doubtful.

“We are moving away from financing takeovers and putting emphasis on financing companies involved in operations, industry, commerce, communications and such.” CEO Zion Kenan said.

Reuters contributed to this report.  

Tal Cohen