There is no doubt that Bank Leumi (TASE: LUMI) has paid a heavy price for its affair with the US authorities. Its fine was almost NIS 2 billion (including large legal costs). According to legal sources, however, Leumi got off easy in the affair. Had the US authorities felt like it, they could have shut the bank down by imposing sanctions restricting its work in the US, which would have been a death sentence for the bank.
Secret meetings in the park and accounts under false names were only a part of what the US regulators' report revealed about how Bank Leumi operated over the past decade. "What we saw at Bank Leumi is a systematic failure on the part of large sections of the banking system, and also in regulation in Israel. In a certain sense, this affair is reminiscent of the bank shares manipulation (which led to the 1983 bank shares collapse, I.A.)," a senior source said about the affair.
The Bank Leumi affair is ending in a heavy fine, but one that the bank can stand. No one paid a personal price. The US authorities could still put former senior bank officials on trial, but this appears very unlikely. This is where the function of the regulators in Israel comes in. A thorough probe is needed at Bank Leumi to discover how the events described by the US authorities occurred, who was responsible for them, and whether they will pay the price. It was previously reported in "Globes" that the Supervisor of Bank is likely to demand that former Bank Leumi CEO Galia Maor return her bonus to the bank. The Bank of Israel is not committed to this, and is demanding an inquiry first. Even without bonuses, someone should bear the blame for the events that occurred at the bank over the past decade.
Bank Leumi now regards most of the affair as old news - only most, because the US Securities and Exchange Commission (SEC) is still conducting an investigation against the bank. Attention is now being diverted to the two other banks embroiled in a similar investigation: Bank Hapoalim (TASE: POLI) and Mizrahi Tefahot Bank (TASE:MZTF). Both of these banks are behaving very cautiously in this affair, and are in no hurry to make significant provisions for it. The reason is believed to be that the US authorities regard making a provision as tantamount to a confession of guilt, and is therefore liable to amount to a self-inflicted wound. At the same time, it is doubtful whether this attitude can persist much longer.
At Mizrahi-Tefahot Bank, the investigation is more focused, and the bank has already hired the KPMG accounting firm to check the figures for the customers. At Bank Hapoalim, the investigation is at a very early stage, but there, too, it can be assumed that it will make progress next year.
Will the fines in these cases be similar to the one imposed on Bank Leumi? It is hard to say. The prevailing opinion is that Bank Leumi was in bigger trouble than its two competitors, because it recruited a series of customers from UBS who fled that bank after an investigation against it began, thereby arousing the ire of the US authorities. On the other hand, time is not working in favor of Bank Hapoalim and Mizrahi-Tefahot Bank, because the more time passes, the higher the fines assessed by the US authorities.
What can be definitely stated is that this uncertainty is casting a shadow on the two banks, reflected not merely in fines, but also the uncertainty concerning a demand by the US authorities for personal responsibility. The US authorities have made sure that Bank Leumi's officeholders at the various levels during the relevant period will be kicked out. It is reasonable to assume that both Bank Hapoalim and Mizrahi-Tefahot Bank will face similar demands at some level.
Published by Globes [online], Israel business news - www.globes-online.com - on December 23, 2014
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