Israel's Bank Hapoalim profit misses estimates as loan provision spikes


By Steven Scheer

JERUSALEM, Aug 15 (Reuters) - Bank Hapoalim reported on Thursday a steeper-than-expected decline in its quarterly profit, as a larger provision to protect the lender against loan defaults more than offset a gain from the sale of its credit card unit.

Hapoalim, Israel's largest lender, said the company earned 871 million shekels ($248 million) in the second quarter, down from 920 million a year earlier.

Excluding one-time items like a capital gain from selling credit card company Isracard in April, Hapoalim posted a net profit of 800 million shekels.

A provision for credit losses rose to 319 million shekels in April-June from 90 million a year earlier and well above expectations of 162 million, while net interest income before the provision climbed to 2.47 billion shekels from 2.30 billion.

Shares of Hapoalim, whose loan book grew 2.2% in the quarter, were 3.5% lower at midday. They are up 11.2% so far in 2019 but lag a 16% gain in the main Tel Aviv banking index .

Much of the bank's poor share performance is due to a U.S. Justice Department (DoJ) tax evasion investigation. Hapoalim has already put aside $611 million to cover a possible future settlement. It has not made further provisions so far this year.


Hapoalim said it was holding talks with U.S. authorities on the type of resolution that should apply to the bank.

"At this time it appears that a resolution or resolutions may be in the form of a deferred prosecution agreement or a plea agreement," it said.

It reiterated that the fine will likely be significantly higher than the amount in the provision.

"While the overhang of the DoJ tends to keep investors' focus away from Hapoalim's strong fundamentals, we see the shares as oversold on DoJ concerns and believe the market fails to account for Hapoalim's strong capital position, which should allow the bank to grow its risk-weighted assets while maintaining its dividend policy," said Barclays analyst Tavy Rosner.

Hapoalim is also undergoing a management shake-up. Last month, it named Dov Kotler as its new chief executive after Arik Pinto in April said he would step down when his term is up at the end of 2019.

The bank said it had started to formulate a share buyback programme after the sale of Isracard created a capital surplus of 1.3 billion shekels.

"Given Hapoalim cannot distribute ordinary dividends owing to U.S. legal matters and compounding this with the 1.3 billion shekel capital gain from the Isracard disposal, capital levels at the bank are high," said Jefferies analyst Joseph Dickerson.

On Wednesday, rival Leumi said net profit rose to 923 million shekels.

($1 = 3.5156 shekels)

Referenced Symbols: LUMI ,

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