Hapoalim Reports 26% Gain in Net for Quarter

Boost comes from one-off sale of stake in Visa Europe.

A Jerusalem branch of Bank Hapoalim. Credit: Tess Scheflan

Bank Hapoalim, Israel’s largest lender, yesterday reported a 26% gain in second-quarter profit, lifted by a one-off gain from the sale of its stake in Visa Europe.

Hapoalim earned 1.12 billion shekels ($293 million) in the second quarter, compared with 886 million shekels a year earlier and above an average forecast in a Reuters poll of analysts for 843 million shekels. Profit included a gain of 109 million shekels from the sale of its stake in Visa Europe and another 108 million from the sale of a loan portfolio. Return on equity reached 13.9%, up from 1.6% a year earlier, while its capital adequacy ratio climbed to 10.2%.

“There were some one-time [items] but underlying performance continues to be solid,” said Citi analyst Michael Klahr.

But a U.S. tax-evasion investigation continues to hang over the bank, which spent as much as 80 million shekels ($21 million) in the second quarter on legal fees related to its defense.

U.S. authorities are probing whether it helped American clients evade U.S. taxes at its Swiss unit. Hapoalim, which has denied the allegations, has handed over most of the information that was requested by the U.S. Department of Justice and New York State officials, and hopes to start a dialogue with those authorities soon in order to finalize the situation, it said.

The bank said it was optimistic that the case could be closed by the end of the year.

Its main domestic rival, Bank Leumi, paid $400 million in fines in late 2014 to settle two separate investigations into whether it helped U.S. clients evade taxes. Mizrahi Tefahot, Israel’s No. 4 lender, is also being investigated and set aside $3.5 million in the second quarter against future penalties.

Hapoalim will pay a quarterly cash dividend of 223 million shekels, or about 17 agorot a share, reflecting 20% of net profit.

Its shares were up 1% in afternoon trading in Tel Aviv yesterday at 20.20 shekels in heavy trading. But the bank’s stock has lagged the sector, up just 0.5% so far this year, compared with 5.3% for Leumi and 2.8% for the Tel Aviv Stock Exchange’s banking index. “We believe the main catalyst for [Hapoalim’s] shares will be the settlement of the ongoing investigation,” said Barclays analyst Tavy Rosner. “This would pave the way to a dividend payout increase from the current 20% to 50%.”

The bank also benefited from improved credit provisions. In the second quarter of 2016, Hapoalim had an income of 128 million shekels from provisioning, compared with an expense of 213 million shekels in the year-earlier quarter. Non-performing loans fell to 1.5%.