Bank Leumi (TASE: LUMI) has widened its market cap gap over Bank Hapoalim (TASE: POLI; LSE:80OA) to more than 23%. For the first time, Bank Leumi has a clear lead as Israel's largest bank.
Bank Leumi's current market cap is NIS 27 billion, compared with NIS 22 billion for Bank Hapoalim. In the past year, Bank Leumi's share has gained 20%, while Bank Hapoalim's share has lost 10%. Traditionally, movement in the two shares was closely correlated, with Bank Hapoalim's share normally priced about 10% higher than Bank Leumi.
The two shares parted ways during the summer of 2007, with the outbreak of the US sub-prime mortgage crisis and the discovery that Bank Hapoalim was highly exposed to it. As the crisis spread, the bank has been forced to write off hundreds of millions of dollars in investments. This in turn has engendered a crisis in confidence among the bank's investors as they realized that it had not operated with the proper transparency regarding the damage.
Meanwhile, Bank Leumi has emerged from the sub-prime crisis almost unscathed because its investment portfolio had almost no exposure to sub-prime mortgages, at least so far as is known. As a result, it has become a preferred investment target among foreign investors in the Tel Aviv Stock Exchange (TASE). Not only have foreign investors reduced their holdings in Bank Hapoalim, they have replaced them with holdings in Bank Leumi.
Nevertheless, the debate over which is Israel's largest bank has not yet been decided one way or the other, and it appears that many investors have been exploiting the recent under-performance in both shares to increase their positions, either for financial or strategic purposes. At the practical level, it should be remembered that Bank Hapoalim is larger than Bank Leumi in terms of financing revenue, operating revenue, number of employees and branches, and in credit granted - even before deducting the figures for former Bank Hapoalim subsidiaries Bank Yahav for Government Employees Ltd. and Bank Massad, which were sold.
Bank Leumi leads in terms of balance sheet total, profits, return on capital, capital adequacy ratio, and in deposits. It is also necessary to deduct from the bank's value the upcoming NIS 1.41 billion dividend. It should also be noted that the bank's higher return has been strongly affected by the upcoming tender for the sale of the government's controlling core in bank, which has attracted strategic investors.
Published by Globes [online], Israel business news - www.globes-online.com - on January 15, 2008
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