Bank Leumi, Israel’s second largest lender, posted a surprise loss in the fourth quarter due to losses on its holding in the conglomerate Israel Corporation. Leumi said it had a net loss of 111 million shekels ($27.9 million) in the quarter, turning around from a net profit of 356 million shekels a year earlier.
The bank had earlier warned that profit would be close to zero for the quarter because of one-off charges such as increased pension costs and regulatory requirements, but analysts polled by Reuters had on average forecast a 15.6 million-shekel profit.
Leumi shares closed up 1.4% at 14.77 shekels on Tel Aviv Stock Exchange trading, but the bank didn’t release its earnings until after trading ended at 5:30 P.M. local time.
Israel Corporation, in which Leumi held 18% in the fourth quarter before selling it down to about 11%, said on Tuesday it posted a loss attributable to shareholders of 464 million shekels in the fourth quarter, widening from 406 million shekels a year earlier.
As far as its core banking business was concerned, Leumi’s net interest income fell 0.4% to 1.802 billion shekels in the fourth quarter, while expenses in respect of credit losses jumped to 483 million shekels from 155 million.
The latter was due to a directive issued by Banks Supervsior David Zaken for banks to set aside more money against possible losses in their growing consumer lending portfolio. For Leumi, that meant a cost of 204 million shekels in the fourth quarter. In addition, Romanian authorities ordered similar measures, which cost Leumi another 52 million shekels in provisions.
For all of 2014, Leumi’s results were also poor, with net profit down 24% to 1.5 billion shekels, in part because of a 1.024 billion-shekel charge it took as part of a settlement with U.S. and New York State authorities over accusations its helped clients evade U.S. taxes. The 2014 charge came on top of charges of 621 million shekels over the previous two years.
Nevertheless, CEO Rakefet Russak Aminoach noted that the bank’s core business remained very profitable last year.
“Despite the many and difficult challenges we encountered, our core indices reflect exceptional results,” she said. “After excluding the provision we made in favor of the agreement with the U.S. authorities, the group’s return on equity is 9.3%.”
Leumi’s Tier 1 ratio, which measures equity capital as a proportion of total risk-weighted assets, edged up to 9.21% – from 9.09% – at the end of 2013.
After reducing its workforce by 1,000 employees over the three years to the end of 2014, the bank said Tuesday it would undertake a three-year cost-cutting program to eliminate another 1,000 jobs by the end of 2017.
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