Excellence Investments analyst Terrence Klingman predicts that Bank Leumi (TASE: LUMI) will report even worse results for the fourth quarter of 2008 than Bank Hapoalim (TASE: POLI; LSE:80OA).
Klingman says, "On the basis of the bad news from Hapoalim, Leumi can expect a very problematic quarter. Leumi is less exposed [than Hapoalim] to changes in fair value on index-linked derivatives, but it is more exposed to reductions in value on its stock and debt holdings, especially bonds of foreign banks." He estimates Bank Leumi's provision on equity at NIS 2.3 billion.
Klingman states that Bank Leumi's structured credit totaled NIS 4.2 billion at the end of the third quarter, and that its unrealized mark-to-market losses will amount to NIS 299 million. Its bonds holdings totaled NIS 33.6 billion at the end of September, including NIS 17.1 billion in foreign bonds, mostly of financial institutions, and that its unrealized mark-to-market losses will amount to NIS 1.75 billion. The bank's unrealized mark-to-market losses on equity and mutual funds amount to NIS 627 million, compared with NIS 4.5 billion book value at the end of September.
At the end of September, Bank Leumi owned NIS 3,31 billion in shares in Migdal Insurance and Financial Holdings Ltd. (TASE: MGDL), Bezeq The Israeli Telecommunication Co. Ltd. (TASE: BEZQ), Hot Cable Systems Media Ltd. (TASE: HOT), Union Bank of Israel (TASE: UNON), Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM), and drugstore chain Super-Pharm Ltd.
As for Bank Hapoalim's profit warning today, that it will report a fourth quarter loss of NIS 250 million, Klingman notes that the bank provided just two explanations, to whit: fair value adjustments on index-linked derivatives, and losses and write-offs for holdings. He notes that investors have already taken the first factor into account, and that the bank's losses on its holdings, chiefly Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and Delek Real Estate Ltd. (TASE: DLKR), could exceed NIS 1 billion.
Klingman also notes that Bank Hapoalim's shareholders' equity yield target for 2009 of 4-7% means a provision of doubtful debts of 1.3-1.8% of its credit portfolio, a level last seen in 2002. He further notes that Israel's GDP fell by 0.6% in 2002, and is projected to fall by 0.2% this year, which means that Bank Hapoalim's guidance is conservative.
Klingman reiterated his "Neutral" recommendation for Bank Hapoalim.
Published by Globes [online], Israel business news - www.globes-online.com - on February 3, 2009
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