Israel's Bank Hapoalim Adds $80m to Cost of U.S. Tax Probe

Bank also sets December 18 deadline for tycoon Shaul Elovitch to repay $170 million debt

The logo of Bank Hapoalim is seen at their main branch in Tel Aviv, Israel July 18, 2016. REUTERS/Amir Cohen/File Photo
AMIR COHEN/REUTERS

Bank Hapoalim said Thursday it would set aside an additional 280 million shekels ($80 million) or so in the third quarter to cover a possible future settlement in an investigation into its alleged help to clients in evading American taxes.

The announcement came amid reports that Hapoalim, Israel’s largest lender, was pressuring Shaul Elovitch’s Eurocom Group – whose holdings include Bezeq, Israel’s biggest telecommunications company – to repay his 400 million shekels in debt to the bank.

In a letter to Eurocom, the bank set a December 18 deadline to repay the debt, or it will go to court. Specifically what Hapoalim will seek is not yet clear. It could seek a wind-up order, which would probably win back much less of the debt than other options, or name an administrator.

Eurocom is now in debt-bailout talks with Hapoalim and other creditors, and other banks are weighing whether to follow Hapoalim’s lead. Israel Discount Bank is the largest lender, and also holds the most collateral of all the creditors, with 600 million shekels ($170 million) due from Elovitch.

“It’s been three years that Eurocom has been talking with the banks and unfortunately we haven’t reached an understanding everyone can agree on. We hope that within two or three weeks to reach one and formulate a debt agreement,” Ami Barlev, Eurocom’s legal counsel, told TheMarker.

Elovitch’s debt problems have been compounded by a wide-ranging securities investigation against him and Bezeq group. But Barlev noted that Eurocom had repaid 2 billion shekels in debt and that Elovitch himself had injected 250 million shekels into the company, even though he was under no legal obligation to do so.

Meanwhile, the new provision for a settlement will bring the total Hapoalim has provisioned for the investigation, including legal costs, to 1.3 billion shekels, it said in a statement to the Tel Aviv Stock Exchange. “It remains possible that the amounts the bank will pay in reaching a settlement with U.S. authorities, if one is reached, will be significantly higher than the provision,” the bank said.

Hapoalim is one of three Israeli banks that have been ensnared in tax probes by the U.S. government and New York State. Bank Leumi reached a $400 million settlement three years ago and Mizrahi-Tefahot, like Hapoalim, is still under investigation.

Thursday’s announcement of the additional provisions comes nine days after the bank said it was putting off release of its third-quarter financial statement by two weeks, without giving any reason for the delay.

Despite the provision, Hapoalim shares ended nearly 4% higher at 23.96 shekels and were the day’s volume leader on the TASE.