Israel's Bank Leumi Warns on Fourth-quarter Profit

Israel's second-largest bank would not report a profit because of a number of one-off charges and regulatory demands.

Bank Leumi in Tel Aviv.
Bloomberg

REUTERS - Bank Leumi, Israel's second-largest bank, said on Wednesday it would not report a profit for the fourth quarter of 2014 partly because of a number of one-off charges and regulatory demands.

The bank, which reports fourth-quarter results in March, said it was expecting to record a 400-500 million shekel ($102-$127 million) contribution to pre-tax profit in the quarter relating to a new pay deal with staff.

But some of that will now be shifted into 2015 following a directive from Israel's banking regulator relating to Leumi's new collective agreement with its employees' union.

Fourth-quarter earnings will also be reduced by 280 million shekels due to changes in calculating the retirement age for pension benefits.

A write-down at conglomerate Israel Corp, in which Leumi is a shareholder, will cut profit by a further 220 million shekels.

Leumi holds 11.1 percent of Israel Corp after selling a 6.9 percent stake earlier this month. Israel Corp has said its profit would be cut following the spin-off of some its assets into a new company called Kenon Holdings.

For the full year, Leumi expects profit of 1.6 billion shekels.

"That's not a bad result given the low inflation and low rate environment," Citi analyst Michael Klahr said. He said that the salary agreement and pick-up in credit growth provided some grounds for optimism in 2015.

Still, Klahr trimmed his target price for Leumi's shares to 16 shekels from 17 shekels but maintained a "buy" recommendation. They were down 0.9 percent at 13.42 shekels in afternoon trading.

The bank said 2014 profit would have been 2.6 billion shekels excluding a provision of about 1 billion to cover a settlement with U.S. authorities over possible tax evasion by its U.S. clients.

Leumi will pay a fine of $400 million to settle the U.S. investigations. The bank had provisioned the entire amount in 2013 and through the first three quarters of 2014.

Earlier this week, Israel Discount Bank, Israel's third-largest bank, had also warned of near-zero fourth-quarter profit.