The only Israeli bank contemplating employee bonuses for 2008 and 2009 is Mizrahi Tefahot Bank (TASE:MZTF), managed by president and CEO Eli Yones. Mizrahi Bank's 2008 results are substantially better than those of other banks.
The cancellation of bonuses is part of some banks' unofficial decisions that the their results render the payment of bonuses impossible, and that it would infuriate the public in this time of economic crisis. Banks that employ a matrix for calculating bonuses on the basis of their return on equity face no dilemma because their results do not meet the threshold conditions for bonuses.
Bank Hapoalim's (TASE: POLI; LSE:80OA) return on equity threshold for bonuses is 8.5%. However, it expects to post a loss of NIS 750 million in 2008, and expects a return on equity of 7% in 2009. Based on the annual loss, the bank, managed by president and CEO Zvi Ziv, will not distribute bonuses at all in the coming year, after distributing an average bonus of NIS 39,000 per employee in 2007.
Bank Leumi (TASE: LUMI) has not yet made a formal decision about bonuses, but president and CEO Galia Maor will reportedly advise against them. The bank posted a small loss for the third quarter of 2008, and its fourth quarter results are expected to be worse. The bank distributed an average bonus of NIS 43,000 per employee in 2007. A few weeks ago, the bank's workers committee agreed to cut by half a scheduled 5% salary hike in 2009.
Israel Discount Bank (TASE: DSCT), managed by president and CEO Giora Ofer, has a bonus calculating matrix, which sets a bonus equal to 50% of a monthly salary if the bank's return on equity exceeds 8.5%; a bonus of one monthly salary if the return on equity exceeds 9.5%, and a bonus of three salaries if the return on equity exceeds 13.5%.
A Discount Bank spokeswoman said, "The bonus budget will be determined on the basis of the annual return on equity, which will be reported in the bank's annual financial report."
Discount Bank had a return on equity of 5.3% in January-September 2008, and, like its peers, it is expected to report very weak fourth quarter results. Analysts predict that the bank will report a return on equity of 4% for 2009.
The management of First International Bank of Israel (TASE: FTIN1;FTIN5) has full discretion on bonuses. President and CEO Smadar Barber-Zadik has not yet made a decision, but since the bank's return on equity was 5.8% by the end of September 2008 and its fourth quarter results are expected to be weak, she will reportedly decide against paying bonuses for the year. Analysts predict that the bank will report a return on equity of 5-6% in 2009, in which case, employee bonuses are unlikely.
Mizrahi Tefahot Bank is the only bank considering paying employee bonuses for 2008. Its return on equity in January-September was 12.1%, the highest in the banking system. Its profit was down just 4.3%, compared with the corresponding period of 2007, and compared with an 82% drop in the aggregate profits of the other banks. A knowledgeable source said that, given Mizrahi Tefahot Bank's strong results, "it cannot be ruled out that its board will approve the payment of employee bonuses."
Published by Globes [online], Israel business news - www.globes-online.com - on February 8, 2009
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