Leumi Sees Loss From Tax Probe

The bank, led by CEO Rakefet Russak-Aminoach, said the quarterly loss would likely trim its annual profit down to NIS 1.09 billion in 2012, a 42% drop.

Bank Leumi said on Monday that it would be setting aside NIS 340 million for the fourth-quarter of 2012 against potential costs from a U.S. tax probe, leaving it with a loss of about NIS 100 million.

The bank, led by CEO Rakefet Russak-Aminoach, said the quarterly loss would likely trim its annual profit down to NIS 1.09 billion in 2012, a 42% drop.

The bank said its estimated loss for the quarter also takes into account another provision of an undisclosed amount for an early-retirement program, but that the sum doesn’t include the contribution from its 18% stake in the Israel Corporation, which hasn’t yet reported its 2012 earnings. Leumi is scheduled to report its results on March 21.

After the news broke, Leumi shares fell 1.9% on TASE yesterday in heavy trading.

“Leumi’s results, even without the impact of the venality, are going to be very weak, and I wouldn’t be surprised if we don’t see major loan-loss provisions as well as additional ones for budgetary pensions due to Leumi employees,” said Terence Klingman, research director at Psagot Brokerage.

The provision covers any penalties that may arise from a U.S. Internal Revenue Service investigation into alleged tax dodging by U.S. customers between 2002 and 2010. It also includes costs associated with hiring external consultants in connection with the probe. Klingman said given the tough stance of the IRS in such cases, the penalty may end up being bigger than Leumi has provided for.

The bank has urged American clients to disclose information about their accounts to U.S. authorities, who have launched investigations into Leumi and other foreign banks as part of a crackdown on U.S. citizens using offshore accounts to avoid paying taxes.

The U.S. effort has been focused largely on banks in Switzerland, but it has been known that banks in other countries, including Israel, are under scrutiny.

Leumi issued a letter to its American customers on December 16, urging them to join the IRS’s voluntary disclosure scheme.

Tomer Appelbaum