Mizrahi-Tefahot bank sets aside added $116.5m for US tax evasion probe

Mizrahi-Tefahot bank sets aside added $116.5m for US tax evasion probe

Provision almost halves profit for the quarter, to NIS 207m ($57.2m) from NIS 400m in the same period a year earlier; CEO says talks with US regulators started

A Bank Mizrahi branch in Jerusalem (Photo credit: Miriam Alster/Flash90)
A Bank Mizrahi branch in Jerusalem (Photo credit: Miriam Alster/Flash90)

Israel’s Mizrahi-Tefahot Bank Ltd. said Thursday it had set aside some $116.5 million in its second quarter financial results, as a provision for a US investigation into the lender allegedly helping US citizens evade taxes.

The bank also said it will withhold a dividend payment for the quarter, in light of the provision and a drop in its Tier 1 capital ratio, a measure of financial strength, to 9.95 percent.

The amount set aside by the bank is in addition to the $45 million the lender had set aside until now for the investigation, bringing to total amount earmarked for the investigation to a figure that is still well below the $342 million offered by the US Justice Department to settle the case. The settlement proposal was rejected by the bank’s board of directors earlier this month.

In their rejection of the offer, the directors said that any amount to be paid to the US regulators should be “significantly lower” than the amount suggested.

In a filing to the Tel Aviv Stock Exchange on Thursday, the bank said that its net profit for the quarter was affected by an added provision of NIS 425 million, or $116.5 million, for the investigation. This brought the lender’s net profit to NIS 207 million, compared to NIS 400 million in the same quarter a year earlier.

Excluding the provision, net profit was NIS 472 million.

Return on equity dropped to 6.1% in the quarter, from 12.7% in the same period a year ago.

The letter the bank received from the US Justice department earlier this month brings the investigation “to its last lap, and represents the start of the negotiations,” Eldad Fresher, CEO of Mizrahi-Tefahot Bank, said in a statement. “We intend to manage intensive talks, if the matter is up to us, with the aim of getting to an adequate agreement as soon as possible.”

He said the provision and the US investigation are naturally the “focus” of the quarter’s financial results.

Deducting the provision, he said, the bank showed strong results in its ongoing banking activities, with a rise in revenue, credit and savings.

The bank said that financing income before credit loss expenses rose 23.5% to NIS 1.47 billion for the quarter, and credit loss provisions rose to NIS 90 million from NIS 42 million.

Fresher said he expects the bank to return to a capital adequacy ratio of more than 10% in the next quarter, and that it will likely resume its dividend payment policy during 2019.

US authorities targeted three Israeli banks with investigations regarding tax evasion in the US by customers. In 2014, Bank Leumi Le-Israel Ltd. agreed to pay some $400 million to US regulators to settle a criminal probe after admitting it helped US taxpayers hide assets. Investigations by US regulators into Bank Hapoalim Ltd. and Bank Mizrahi-Tefahot Ltd. are ongoing.

Earlier this month, Bank Hapoalim also said it would put its second quarter dividend on hold, due to the US tax evasion investigation, but didn’t make additional provisions to the $365 million it has set aside for the investigation.

The investigations have caused Israeli banks to decrease their activities abroad, and there has been a dramatic drop in the number of deposits held by foreign residents in Israeli banks, the Bank of Israel has said. In the past 10 years, almost NIS 70 billion ($19 billion) worth of deposits by foreign residents have left Israel’s banking system, according to central bank data.

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