Despite receiving notice of a $324 million fine from the US authorities, Mizrahi Tefahot Bank (TASE:MZTF) is making a provision of only $116 million for the US investigation against it at this stage. The bank also announced that in view of developments in the affair in the US, it was halting its dividend distribution.
Mizrahi Tefahot Bank, managed by CEO Eldad Fresher, today published its second-quarter results. Despite the provision, the bank reported a NIS 207 profit in the quarter, reflecting a 6.1% return on equity; without the provision, the bank's return on equity would have been a high 14.1%.
The large provision, combined with growth in the bank's credit portfolio, put Mizrahi Tefahot on the border of the minimum capital adequacy requirement with 9.95%, compared with the 9% requirement. The bank stated, "The bank is taking steps to increase its margin of safety for its capital ratios."
Mizrahi Tefahot's provisions for the US investigation have totaled $162 million to date, half of the amount demanded by the US authorities. The bank has already notified the US Department of Justice that it will not pay the fine, and is seeking talks with the authorities in the US in order to reduce it, while making provisions for only half of the amount demanded.
Fresher said today, "The goal is to put the investigation behind us as soon as possible, so that we can continue focusing on implementation of our strategic plan." He added, "We expect that simultaneously with handling the investigation and halting distribution of a dividend for the moment, the bank will be able to continue our growth momentum in line with our strategic plan and return to a capital adequacy ratio of over 10% in the next quarter. We believe that we will be able to resume our regular dividend distribution policy in 2019."
Capital market investors are already pricing the bank's share according to the projected developments. Mizrahi Tefahot's share price has dropped 10% in the past three weeks, erasing NIS 1.3 billion from its market cap.
Published by Globes [online], Israel business news - www.globes-online.com - on August 30, 2018
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