Israel's Biggest Lender Quietly Makes Provisions for U.S. Tax Penalties

Sivan Aizescu
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A branch of Bank Hapoalim. Credit: Tomer Appelbaum
Sivan Aizescu

Without letting its shareholders know, Bank Hapoalim, Israel’s biggest lender, has been setting aside hundreds of millions of shekels in provisions against a possible future settlement with U.S. authorities over suspicions it helped client evade American taxes, TheMarker has learned.

The bank has been setting aside the funds over the last several quarters but only in amounts of tens of millions of shekels. The amounts were small enough that Hapoalim has not had to break out the reason it is making the provisions.

On Thursday the Israel Securities Authority told the bank it would have disclose the provisions in its next report, which is due to be released March 10, and will show figures for the fourth quarter and full year of 2014. Hapoalim will be making further provisions for the quarter as well.

The Supervisor of Banks in the Bank of Israel, David Zaken, is believed to have authorized Hapoalim and No. 4-ranked Mizrahi Tefahot Bank to set aside money quietly, with some industry sources suggesting the reason is that public acknowledgement of the provisions would have been used by American authorities against the two banks.

However, the situation has changed since Bank Leumi, Israel’s second-largest lender, in December agreed to pay fines totaling $400 million to the U.S. government and to New York state to settle investigations into whether it helped its U.S. clients evade taxes.

The settlement made public the kind of terms Hapoalim and Mizrahi can expect to get from the U.S. authorities, so there is no longer any need to keep the banks’ estimates secret. That may have been the reason behind a report on Army Radio on Thursday that Zaken would publicly ask the banks to disclose their provisions.

Reuters reported that the Bank of Israel declined to comment, while a Hapoalim spokeswoman said there was nothing to add since publishing quarterly financial results in November. Mizrahi-Tefahot was not immediately available for comment.

“It’s possible this will not be the only provision but the first of several,” said Amir Adar, a banking analyst at brokerage Meitav Dash.

Hapoalim has said Swiss authorities notified its Swiss unit that it is under investigation by U.S. authorities, but no other details were provided. Mizrahi Tefahot said in August its Swiss unit was asked by U.S. authorities to provide more data. 

With reporting from Reuters.