Merrill Lynch terms yesterday's Bank Hapoalim (LSE: BKHD; TASE: POLI) warning of a NIS 250 million fourth quarter loss disappointing, but "not a disaster" for the bank, though Merrill Lynch admits the size of the loss is larger than they expected.
In reviewing the profit warning, Merrill Lynch analyst Haim Israel finds more fault with the "warning" than with the "profit" issue. He is disappointed that bank management waited until yesterday to adjust its fourth quarter guidance, especially as the mark-to-market losses in its investment securities portfolio was known, or expected, for quite a while. He also faults Hapoalim's lack of a full-time CFO, especially in difficult economic times like the present.
The analyst expects the bank's capital adequacy ratio falling to 11.1% by the end of 2008, and says it will need to increase its capital by NIS 2 billion to reach a target ratio of 12% by the end of 2009.
Israel notes that, while analysts knew about mark-to-market losses, Merrill Lynch underestimated the magnitude of the quarterly loss to be reported for the fourth quarter. He sees the loss arising from continued markdowns on CDOs and CDS, mark-to-market losses of about NIS 300 million from off-balance sheet items, and mark-to-market losses of about NIS 200 million on the bank's equity stakes in firms such as Delek Real Estate Ltd. (TASE: DLKR) and Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS). An additional expense will be about NIS 100 million for early retirement costs.
Israel cut his target price on Hapoalim from NIS 9.50 to NIS 8.80, but maintains his "Neutral" rating, saying the guidance does not impair the bank's underlying earning power, as most of the anticipated losses are due to accounting policies or "timing" as opposed to economic activity.
Bank Hapoalim shares traded up 3.8% at NIS 8.08 in afternoon trading on the Tel Aviv Stock Exchange (TASE).
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2009
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