Israel's Bank Leumi Q2 profit dips as economy slows
JERUSALEM (Reuters) - Israel's Bank Leumi (LUMI.TA), reported a decline in quarterly profit on Wednesday and analysts believe a slowing economy will continue to weigh on the banking sector's bottom line in coming quarters as loan risk grows.
Leumi posted net profit of 889 million shekels ($250 million), or 0.60 shekel per share, compared with 913 million shekels, or 0.65 shekel a share, a year earlier.
Leumi's provision for problem debts surged to 316 million shekels -- or 0.63 percent of its loan portfolio -- in the quarter from 38 million a year ago.
Operating and other income fell 24 percent to 864 million shekels as weaker financial markets led to lower fees from securities transactions and losses on investments.
Financing income before the bad debt provisions rose to 1.953 billion shekels from 1.809 billion.
Israel's largest bank by market value, Leumi was expected to post net profit of 940 million shekels on financing income of 1.967 billion shekels, according to the average estimate in a Reuters poll of eight analysts.
Its chief rival, Hapoalim (POLI.TA), is set to report earnings on Thursday.
"The results were not impressive (but) the bank is enjoying a lot of financial strength that will help as the economy slows," Yuval Ben Zeev, an analyst at the Clal Finance brokerage in Tel Aviv, wrote in a note to clients.
Leumi's shares were down 1.23 percent at 15.22 shekels in afternoon trading in Tel Aviv.
"Leumi remains Israel's most expensive bank, theoretically suggesting the deterioration in banking profits has not yet been fully priced in," Merrill Lynch wrote in a report, adding Leumi to its least preferred list of emerging market financial firms.
On the heels of a global downturn, Israel's economic growth is expected to slow to 4.2 percent in 2008 from 5.4 percent in 2007.
NON-BANKING HELPS
Analysts said most of Leumi's profit stemmed from non-banking activities. Its profit from core banking activities dipped to 439 million shekels from 870 million a year ago.
Citigroup's Simon Nellis noted that Leumi's bottom line was hurt by a high effective tax rate of 47.7 percent.
Leumi posted a capital gain of 234 million shekels from the sale of a 20 percent stake in credit card unit LeumiCard.
"These are not recession numbers but they are not as good as what we saw during the economic boom of last year," said Lehman Brothers analyst Joseph Wolf. He expects more of the same from Leumi as the economy slows.
Leumi's net return on equity decreased to an annualised 19.1 percent in the second quarter from 20.9 percent a year ago.
Leumi said the value of its aseet-backed securities portfolio was $1.4 billion at the end of June, of which $1 billion were U.S. mortgage backed securities. It noted that the aggregate decrease in the value of its capital fund in respect to ABS was $73 million, compared with $104 million at the end of March.
During the first half of 2008, Leumi charged $27 million to its profit and loss statement as a permanent decline in value.
($1 = 3.55 shekels)
