What is Israel's most profitable bank? It's an easy question. The answer has been the same for the past three years and there will be no change for 2010. From the start of 2010, Bank Leumi (TASE:LUMI) has reported profits of NIS 1.67 billion (regular activities) compared with NIS 1.51 billion for Bank Hapoalim (TASE: POLI).
But if you ask the question a different way - what is Israel's most profitable bank in pure banking terms - then the situation is reversed. Hapoalim had profits of NIS 1.52 billion while Leumi's profits were NIS 1.44 billion. The figures are not surprising because a quick glance at the balance sheets of the two banks shows that Hapoalim has revenue from banking activities which is NIS 1.2 billion higher than Leumi's revenue.
So how come Leumi has bigger profits? The answer lies in its "real" holdings. Leumi's portfolio includes Israel Corp. (TASE:ILCO), which holds Israel Chemicals Ltd. (TASE: ICL) and Oil Refineries Ltd. (TASE:ORL), Super Pharm, Migdal Insurance and Financial Holdings Ltd. (TASE:MGDL), Electra Ltd. (TASE:ELTR) and very soon Tnuva. In the not distant past, Leumi also held stakes in Africa-Israel Investments Ltd. (TASE:AFIL and Paz Oil Company Ltd. (TASE:PZOL). These 'real" holdings contributed NIS 259 million to Leumi's profit and created the gap with Hapoalim.
The heads of Bank Hapoalim have identified the problem and the bank is currently strengthening its non-banking holdings. In contrast to Bank Leumi, Hapoalim does not want to be involved in managing the companies that it buys. It is not buying larger stakes but rather 2% here in Azrieli Group and 5% there (purchased today) in Strauss Group Ltd. (TASE:STRS). It would be no surprise if the next acquisition is a telecom company such as Bezeq Israel Telecommunications Company Ltd. (TASE:BZEQ) or Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL).
This is Hapoalim's long term plan not a short term strategy. It intends investing in solid and stable companies that will yield fixed dividends and stream revenue into the bank. And if necessary the assets can be easily realized. Will this enable Hapoalim to overtake Leumi and again become Israel's largest bank? Only time will tell. But meanwhile Hapoalim is closing the gap.
Published by Globes, Israel business news - www.globes-online.com - on December 27, 2010
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