Leumi Q1 profit falls 3% due to Zim losses

The net profit of Bank Leumi (TASE: LUMI) fell in the first quarter of 2011, due to losses by Zim Integrated Shipping Services Ltd., the wholly-owned subsidiary of Israel Corporation (TASE: ILCO), in which Bank Leumi owns a 17.8% stake.

Bank Leumi's net profit fell 3.2% to NIS 577 million (NIS 0.39 per share) for the first quarter from NIS 596 million for the corresponding quarter of 2010. However, profit from regular operations excluding subsidiaries rose by 23%. The bank posted a NIS 42 million loss on its holding in Israel Corp for the first quarter, compared with a profit of NIS 85 million for the corresponding quarter.

Bank Leumi's return on equity fell to 10.4% for the first quarter from 11.2% for the corresponding quarter. Its core capital adequacy ratio was 8.25%, within its 8-8.5% target, and the general capital adequacy ratio was 14.1%.

For the first time, Bank Leumi reported its credit risk pursuant to the Bank of Israel's circular on bad debt. Implementation of the circular cost Bank Leumi NIS 721 million and lowered its capital adequacy ratio by 0.27%.

Bank Leumi reported income for credit losses of NIS 102 million for the first quarter compared with expenses of credit losses (previously known as the provision for doubtful debts)of NIS 130 million for the corresponding quarter, due to NIS 181 million previous reductions in the provision for individuals and NIS 41 million in reductions in the provision for groups.

Bank Leumi's salary expense continued to rise, reaching NIS 1.3 billion for the first quarter, 16% more than for the corresponding quarter. The bank attributed the unusually large increase to the fact that no profit was recorded in the employee compensation fund in the first quarter, whereas the bank had to make a NIS 183 million provision for this item in the corresponding quarter. Excluding this item, the bank's salary expenses rose by 3%.

Revenue from financing operations before expenses for credit losses rose to NIS 1.94 billion for the first quarter from NIS 1.81 billion for the corresponding quarter. Profits from international operations rose 41% to $16 million for the first quarter, mainly due to a 64% increase in profits by Bank Bank Leumi (UK) plc, although losses by Bank Leumi Romania continued.

Bank Leumi's exposure to the PIGS (Portugal, Ireland, Greece, and Spain) is NIS 638 million, of which NIS 10 million is classified as bad debt. The bank's exposure to Spain is NIS 546 million (mostly to bonds of Santander Bank SA (NYSE: STD; IBEX :SAN), its exposure to Ireland is NIS 86 million, and its exposure to Greece is NIS 6 million.

Deposits from the public rose to NIS 248.3 billion at the end of March from NIS 244.6 billion a year earlier and net credit to the public rose to NIS 223.1 billion from NIS 207.6 billion.

Bank Leumi's share price rose 0.4% by mid-afternoon to NIS 16.61, giving a market cap of NIS 24.4 billion.

Published by Globes [online], Israel business news - www.globes-online.com - on May 31, 2011