Israel's Bank Leumi Issues Profit Warning for Q4 Over Provision for U.S. Tax Probe

Following allegations that the Israeli bank actively helped American customers to evade U.S. taxes, leading it to provision NIS 340 million, Leumi is expected to post a loss of NIS 100 million.

An ongoing investigation by the U.S. Internal Revenue Service into allegations that Bank Leumi actively helped American customers to evade U.S. taxes has led the bank to provision NIS 340 million to cover expenses for the investigation. The provision will be reported in the bank’s reports for the fourth quarter of 2012.

Bank Leumi, which is headed by CEO Rakefet Russak-Aminoach, announced on Monday morning that as a result of this provision, combined with an additional provision for an early-retirement program for bank employees, it will be reporting a loss of about NIS 100 million for the last quarter of 2012. Leumi warned on Monday of a possible 42% drop in net profits for the year, to NIS 1.09 billion, down from NIS 1.89 billion for 2011.

Bank Leumi said the provision is intended to cover potential expenses to the group by the American authorities’ investigation of customers who are U.S. taxpayers and noted that the probes refer to the 200-2010 period.

The bank said the provision is to cover any expenses arising from the investigation, which relates to the period 2002-2010, including the cost of advisers hired by the bank.

Leumi also said that since it does not know for certain how much it will have to spend on the U.S. investigation, the final expense could be significantly higher. "This provision is not an admission regarding any complaint that might be raised against the group by U.S. tax authorities," the bank said in a statement.

Leumi said the estimates for 2012 exclude any contribution to be had from the bank's 18 percent stake in conglomerate Israel Corp, which has yet to report results.

The bank has urged U.S. clients to disclose information about their accounts to U.S. authorities, who are investigating Leumi and other foreign banks as part of a wide-ranging campaign to crackdown on Americans using offshore banks to avoid 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.

In a December 16 letter obtained by Reuters, Bank Leumi urged its U.S. customers to join the IRS's voluntary disclosure scheme.

Tal Cohen
Moti Kimche