March 26, 2018 / 8:02 AM / in 25 days

UPDATE 1-Israel's Bank Hapoalim Q4 profit up more than expected

(Adds chairman, analyst comments, details, background)

By Tova Cohen

TEL AVIV, March 26 (Reuters) - Bank Hapoalim, Israel’s largest lender, reported higher than expected quarterly net profit despite a provision for a U.S. tax investigation, as credit loss expenses fell sharply and interest income rose.

Hapoalim said on Monday it earned 612 million shekels ($175.6 million) in the fourth quarter, up from 138 million shekels a year earlier and compared with 579 million shekels forecast in a Reuters poll of analysts.

The bank said it set aside $79.5 million in the quarter to cover a possible future settlement in a U.S. tax evasion investigation, bringing the amount provisioned so far to $348 million. This was slightly higher than the $75 million it had said last month it would set aside.

“Alongside other banks around the world, we continue to cope with the United States government authorities’ investigation of the bank group’s business with American clients,” Chairman Oded Eran said. “It is our hope that this matter can be concluded soon, but we realize that until the process is complete, uncertainty regarding the nature of its resolution and the costs for the bank will persist.”

Barclays analyst Tavy Rosner said that Hapoalim shares have underperformed those of its main rival, Leumi, by 21.6 percent in the last twelve months, which he attributed to the U.S. investigation.

“While we continue to view this matter as a headline risk, we believe the bank is capable of weathering a potential sizable fine and we recommend investors focus on the bank’s strong fundamentals,” said Rosner, who rates Hapoalim “overweight”.

Hapoalim’s shares were up 0.5 percent in morning trade.

Leumi paid $400 million in fines to U.S. authorities in 2014.

Net interest income rose to 2.23 billion shekels in the quarter from 2.03 billion a year earlier while credit loss expenses plunged to 24 million shekels from 469 million.

Operating expenses fell 10 percent as the bank reduced its headcount by 455 in 2017 to 11,173 employees.

Hapoalim’s core Tier 1 capital ratio to risk-weighted assets, a key measure of financial strength, rose to 11.26 percent from 11.01 percent at the end of 2016.

The bank declared a quarterly dividend of 245 million shekels, or 18.345 shekels a share, for a payout of 40 percent of net profit. ($1 = 3.4850 shekels) (Additional reporting by Steven Scheer, editing by Louise Heavens)

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