Israel's Bank Hapoalim fourth-quarter profit sinks on U.S. tax probe provision

TEL AVIV (Reuters) - Israel’s Bank Hapoalim reported on Monday sharply lower quarterly net profit, weighed down by a large provision for an ongoing U.S. tax evasion investigation.

FILE PHOTO: The logo of Bank Hapoalim, Israel's biggest bank, is seen at their main branch in Tel Aviv, Israel July 18, 2016. Picture taken July 18, 2016. REUTERS/Amir Cohen/File Photo

Hapoalim earned 97 million shekels ($27 million) in the fourth quarter, down from 612 million a year earlier.

Excluding one-time provisions, net profit was 991 million shekels, compared with 938 million forecast in a Reuters poll of analysts, and 908 million a year earlier.

It said profit excluding one-time provisions rose due to an increase in credit volumes in business banking and housing, profits from stock and bond sales, and lower salary expenses.

The bank has reduced its headcount by 23 percent to 9,427 since 2012.

Hapoalim said this month it would set aside an additional $246 million in the quarter to cover a possible future settlement regarding a U.S. Department of Justice (DoJ)investigation of the bank’s business with American clients. This brings its total provisions to $611 million.

“I really hope by the end of the year we will be finished with this,” Hapoalim CEO Arik Pinto told reporters.

The bank did not declare a dividend for the third quarter in a row due to the uncertainty of the probe. It said this did not change its policy of paying dividends of up to 40 percent of quarterly net profit.

Net interest income in the fourth quarter rose to 2.29 billion shekels from 2.16 billion a year earlier, while credit loss expenses increased to 189 million shekels compared to loan recoveries of 11 million a year ago.

Hapoalim’s shares were up 0.4 percent midday and have risen 5.7 percent in 2019 after losing 7.6 percent in 2018. The Tel Aviv Stock Exchange’s index of top banks is up 9 percent this year and rose 4.8 percent in 2018.

“While the frequent provisions for the DoJ are unfortunate and tend to keep investors’ focus away from Hapoalim’s strong fundamentals, we see the shares as oversold on DoJ concerns and believe the market fails to account for Hapoalim’s strong capital position,” Barclays analyst Tavy Rosner said.

Last week, Hapoalim said it planned to list shares of its credit card unit Isracard, valued at 3 billion shekels, on the Tel Aviv bourse following demands by regulators for Israel’s top two banks to divest their credit card subsidiaries.

Hapoalim has until 2021 to sell Isracard, the country’s biggest credit card issuer.

Last month, U.S. private equity firm Warburg Pincus acquired rival Bank Leumi’s credit card business.

Additional reporting by Steven Scheer; Editing by Shreejay Sinha and Edmund Blair