Clal Finance research department manager Yuval Ben-Zeev says that the time has come to hit the brakes on the banks, after a 95% share price run-up. He has cut his recommendation for the banking sector to "Market perform" from "Outperform", after advising buying bank shares in March 2009.
The downgrade applies to the shares of Israel's top five banks: Bank Hapoalim (TASE: POLI), Bank Leumi (TASE: LUMI), Israel Discount Bank (TASE: DSCT), Mizrahi Tefahot Bank (TASE:MZTF), and First International Bank of Israel (TASE: FTIN1;FTIN5).
Ben-Zeev cites the bank shares' reasonable capital multiples, expected pressure on the supply side in the coming months on the shares of Bank Leumi and Discount Bank due to the government's decision to sell its holdings in them, and the decision by Bank Hapoalim to deepen its retail banking activity, which will increase competition while affecting profit margins.
The banks' shares currently trade at an average price to book ratio of 1.1, compared with 0.6 a year ago, just before the surge. Ben-Zeev says that, historically speaking, bank shares are not as cheap as they were a year ago.
In addition to the high share prices, Ben-Zeev also sees another factor burdening bank shares: the government's sale of its 20% stake in Discount Bank, after Tuesday sale of a 5% bloc of shares, and 11% stake in Bank Leumi. The sales will put pressure on the shares of the two banks.
Ben-Zeev says, "Another concern for the buyers comes from foreign investors, who own 30% of the shares of the big banks." In May, MSCI will change Israel's status from emerging market to developed market, which market sources believe will prompt foreign investors to divest their Israeli bank holdings because Israel's weight in theMSCI Developed Markets Index is just 0.4% compared with its 3.6% weight in the MSCI Emerging Markets Index. Ben-Zeev says, "Israel's reclassification is liable to cause additional sell pressure."
Bank Hapoalim's share fell 1.7% by early afternoon to NIS 16, Bank Leumi's share fell 1.7% to NIS 16.66, Discount Bank's share fell 1.1% to NIS 8.67, Mizrahi Tefahot Bank's share fell 0.8% to NIS 33.94, and First International Bank's share fell 1% to NIS 62.80.
Published by Globes [online], Israel business news - www.globes-online.com - on January 14, 2010
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