Bank Hapoalim declines after girding for possible US settlements

Israel’s largest lender warns of ‘significant drop’ in profit foreseen for fourth quarter amid investigation into tax fraud

By Shoshanna Solomon

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26 March 2017, 1:13 pm

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Shoshanna Solomon was The Times of Israel's Startups and Business reporter

A Jerusalem branch of Bank Hapoalim. (Nati Shohat/Flash90)

Shares of Israel’s Bank Hapoalim Ltd., the nation’s largest lender, traded some 1.6 percent lower at 12:27 p.m. in Tel Aviv on Sunday after the bank said it would be making provisions relating to US tax evasion investigations of $68.5 million in the fourth quarter, and warned fourth quarter earnings would be hurt.

In a filing to the Tel Aviv Stock Exchange on Thursday evening, after the close of the stock market for the weekend, the bank said it would make an added provision of about $25 million for a potential settlement of a US Department of Justice investigation and a provision of some $43.5 million for a separate investigation by the New York Department of Financial Services (NYFDS).

The funds earmarked for the DOJ would be in addition to the $120 million Hapoalim has already set aside for the DOJ investigation, in which the department is probing whether the Israeli bank helped American clients evade US taxes at its Swiss unit. Bank Hapoalim has denied the allegations.

Hapoalim also said it was provisioning the $43.5 million in the fourth quarter for the NYDFS investigation, on instructions it received from the Bank of Israel, because it expects to have to pay additional amounts to the NYFDS for a potential settlement. “At this stage, it is not possible to accurately estimate the extent of exposure,” the filing said. “It is possible these amounts will be significant.”

In addition, the bank said that in the fourth quarter it was expecting to post loan loss provision of NIS 470 million ($129 million), without elaborating, bringing the provisions for the year to a total of NIS 270 million. It also expects a tax expense of NIS 157 million in the quarter, as an accounting measure related to a decline in corporate taxes, the bank said.

All these are expected to “lead to a significant drop in profit at the banking group in the fourth quarter of 2016,” the bank said.

Bank Leumi Le-Israel Ltd., the country’s second largest bank, paid $400 million in fines in 2014 in the settlement of two investigations by US authorities, into whether the bank helped US clients evade taxes.

Bank Hapoalim is scheduled to report fourth quarter results on March 30.