Leumi expects first-quarter profit to slide 50% due to drop in US bank stake value

Leumi estimates that it will need to write down the value of its 14.2% stake in Valley National Bancorp by NIS 1b, as shares in the US bank have lost 33% of their value this year

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustrative: Israelis walk next to Bank Leumi in Jerusalem, on November 16, 2014. (Yonatan Sindel/ Flash90/ File)
Illustrative: Israelis walk next to Bank Leumi in Jerusalem, on November 16, 2014. (Yonatan Sindel/ Flash90/ File)

Israel’s Bank Leumi announced on Sunday that it expects its first-quarter profit to decline by some 50 percent due to the plunge in the value of its investment in New Jersey-based Valley National Bancorp (Valley Bank).

Leumi, one of Israel’s two largest banks, said it expects to record an approximately NIS 1 billion depreciation ($275 million)in the value of the shares it holds in Valley Bank in the first quarter of 2023, according to preliminary estimates.

Leumi reassured investors that the reduction in the value of the investment was not expected to have a “material effect” on the bank’s regulatory capital adequacy ratio. The bank is scheduled to publish first-quarter earnings at the end of May. Leumi shares rose 1.4% in early afternoon trading on the Tel Aviv Stock Exchange.

Shares in Valley Bank, in which Leumi owns a 14.2% stake, have lost 33% of their value since the start of the year as investors grew wary following the collapse of a string of US banks led by Silicon Valley Bank and Signature Bank, and analysts downgraded the bank’s stock last week. On Monday, US regulators seized San Francisco-based First Republic Bank, the third midsize bank to fail in two months.

Leumi said it views Valley Bank as a “long-term strategic investment [and] partner” in its strategy to grow the bank’s credit and loan portfolio in the US.

“Valley is a bank with a consistent history of stringent risk management,” Leumi said in a statement. “In addition, Leumi continues to express optimism regarding the US banking sector.”

Last year, Leumi merged Leumi USA, the bank’s United States operations, with Valley Bank to boost its exposure to the US banking market. As part of the deal Leumi obtained 14.2% of the merged bank stocks and became the largest non-controlling shareholder.

In the first half of 2022, the Israeli bank recorded a post-tax profit of NIS 645 million from merging Leumi USA into Valley Bank and, including equity profits and dividends, total income amounted to NIS 1 billion, which will now be erased following the revaluation.

“Even following the current revaluation, Leumi is balanced in respect of the results of the merger transaction of Leumi USA with Valley National,” the bank noted.

In 2022, Leumi posted the biggest profit among Israel’s largest lenders as fast interest rate hikes and rising inflation helped fuel financing income and helped its credit and loan operations to flourish. Net profit in 2022 rose 27% to a record NIS 7.7 billion from NIS 6 billion in the previous year. In the fourth quarter of 2022, Leumi saw its profit jump almost 60% to NIS 2.3 billion versus NIS 1.5 billion in the same quarter in 2021. Its competitor Bank Hapoalim earned a record NIS 6.5 billion in 2022.

Operating in the US since 1927,  Valley Bank is a regional bank with more than $64 billion in assets serving 625,000 customers.

“Valley, which is conservatively managed and has never recorded a quarter of losses, has excess liquidity of approximately 1.4 times its uninsured deposits,” Leumi noted. “Over 70% of the depository portfolio of Valley is insured.”

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