November 26, 2019 / 12:37 PM / 13 days ago

UPDATE 1-Bank Leumi profit misses estimates as inflation drops

(Adds details, share reaction, analyst comment)

By Steven Scheer

JERUSALEM, Nov 26 (Reuters) - Bank Leumi, one of Israel’s two largest banks, on Tuesday reported lower than expected third-quarter net profit, showing the impact of a drop in inflation.

Leumi’s net profit came in at 765 million shekels ($221 million) in the third quarter, down from 936 million a year earlier.

The bank said the lower profitability versus the same quarter last year mainly stemmed from a negative CPI in the quarter at a rate of 0.7%, compared to a positive CPI at a rate of 0.2% in the same quarter last year.

Banks in Israel provide loans that are linked to CPI, so when this drops their income can be affected.

The bank, Israel’s largest by market value, was forecast to earn 793 million shekels, according to a Reuters poll of analysts.

Excluding the effect of Leumi Card, which it sold earlier this year to U.S. private equity firm Warburg Pincus, profit in the third quarter of 2018 was 894 million shekels.

Leumi is going through a management shake-up after Chief Executive Rakefet Russak-Aminoach ended her term at the end of October after seven years in the job. Hanan Friedman took over at the start of November.

The bank said its core business remained strong, with credit growing at 6% over last year — mainly to mid-sized businesses, mortgages to households and large companies — and above expectations of 4% for 2019.

Leumi shares fell 1.2% in afternoon trading in Tel Aviv.

Barclays analyst Tavy Rosner maintained an “overweight” rating for Leumi.

“We continue to like Leumi as the bank has returned to accelerated credit growth alongside its streamlining measures,” he said, adding the bank has returned the most cash to shareholders this year — about 60% — from dividends and a buyback programme.

Leumi declared a quarterly dividend of 306 million shekels, representing 40% of net income and down from 369 million in the second quarter.

In May, Leumi’s board approved a buyback plan of its own shares valued at up to 700 million shekels. Last week the programme was completed.

Leumi said it was considering raising its dividend payout to 50% next year while also doing another share buyback, although no decision is likely to be reached until its fourth-quarter results in March.

The bank’s main rival, Hapoalim, last week reported a 22.5% drop in third quarter net profit to 736 million shekels.

Leumi’s net interest income dipped to 2.1 billion shekels from 2.2 billion due to the decline in inflation.

Non-interest income fell by 351 million shekels after posting gains a year earlier from the sale of shares, including in the Tel Aviv Stock Exchange.

Loan-loss expenses fall to 181 million shekels from 198 million a year earlier.

Similarly, commissions fell by over 200 million shekels due to the sale of Leumi Card, the bank said.

The bank’s Tier 1 equity to risk assets - a measure of financial strength - rose to 11.73% from 11.07% at the end of 2018.

$1 = 3.4684 shekels Reporting by Steven Scheer; Editing by Tova Cohen and Jane Merriman

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