Bank Leumi Says in Talks With U.S. SEC About Possible Securities Violations

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Bank Leumi's U.S. headquarters. Leumi is one of three Israeli banks embroiled in tax-evasion cases in the U.S.
Bank Leumi's U.S. headquarters. Leumi is one of three Israeli banks embroiled in tax-evasion cases in the U.S.Credit: Bloomberg News

Bank Leumi is in talks with the United States Securities and Exchange Commission that could lead to its paying penalties to the watchdog over securities held by its U.S. clients, the bank’s top executives told a news conference Wednesday.

CEO Rakefet Russak Aminoach said the bank is talking to the SEC but it is unclear whether there will be any further repercussions. At issue is whether any laws were broken regarding securities held by Leumi’s U.S. clients, she said.

“We have no idea whether there is a matter we will have to pay for,” Russak Aminoach said. “I can say only that if you look at all agreements made around the world in an issue similar to ours, if in the end someone paid the SEC, it was always minor and negligible compared with the size of the agreement."

The admission came a day after the bank reported a surprise loss of 111 million shekels ($28 million) for the fourth quarter. Leumi, Israel’s second-largest lender, agreed to pay $400 million to the Department of Justice and New York State after investigations into whether the bank helped its U.S. clients to evade taxes.

Chairman David Brodet defended the terms of the settlement, saying the bank had taken the best course by cooperating with U.S. authorities and that it had lifted “a heavy cloud of uncertainty.” Two other Israeli banks — Hapoalim and Mizrahi Tefahot — are facing a similar investigation.

“I don’t want to cover up anything, but we were portrayed with some degree of injustice, as if we were the only ones who did just that. You know that this is not so, that these practices were common in those years all over the world, including Israel, with some private banking clients,” Brodet said.

“I can say with confidence — and I’m not sure every Israeli bank chairman say this with the same certainty — that today the Leumi Group operates according to the highest standards in the sector, both in the Israeli and international banking system.”

Shares of Leumi, which had risen Tuesday before its fourth-quarter results came out after the Tel Aviv Stock Exchange closed, extended it gains on Wednesday to close up 1.4% at 14.97 shekels.

Brodet, a former director-general of Israel’s Finance Ministry, also called on the country’s new government and Finance Minister-designate Moshe Kahlon not to undermine stability in the banking sector.

Kahlon and his Kulanu Party campaigned to open banking to more competition by encouraging Internet banks and forcing existing banks to divest their credit card businesses. With a combined market share of about 60%, Leumi and Hapoalim are the most vulnerable to such measures.

“We are not worried about increasing competition because we are used to it,” Brodet said. “I expect for there to be a dialogue, real and matter-of-fact between us ... And let’s remember that things have to be done in a way that doesn’t hurt the stability of the banks.”

Regarding dividend policy, Leumi said its policy of refraining over the past four years from payouts would continue for the foreseeable future. “We, as management, must reach a condition in which we can distribute dividends to shareholders but there will be no dividend for now,” said Ron Fainaro, head of Leumi’s finance division.

The bank ended 2014 with a Tier 1 capital adequacy ratio of 9.21% and must get the figure up to 10.25% by 23017 under Bank of Israel regulations. But, under new accounting rules going into effect this year, the ratio will likely to fall to 9%, Fainaro warned.

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