TEL AVIV (Reuters) - Bank Hapoalim (POLI.TA), Israel's largest lender, reported lower quarterly net profit because of one-off items including provisions for a U.S. tax evasion investigation, as well as sharply higher expenses for credit losses.
Its main domestic rival Leumi (LUMI.TA) reported slightly higher profit despite one-time tax expenses affecting the banking sector. Leumi said it would resume dividends in 2017, six years after stopping payouts due to the financial crisis.
Hapoalim, which issued a profit warning last week, said on Thursday it earned 138 million shekels ($38 million) in the fourth quarter, down from 586 million a year earlier. Excluding one-time items, net profit was 937 million shekels.
Hapoalim said last week it would take provisions of $68.5 million regarding an investigation by U.S. authorities into suspected tax evasion by the bank's U.S. clients. This would be in addition to $120 million Hapoalim has already set aside for this matter.
"We are making great efforts to progress" in the U.S. investigations, Chief Executive Arik Pinto told reporters. "We hope by the end of this year we will finish with this."
Leumi (LUMI.TA) underwent a similar investigation and paid $400 million in fines in late 2014.
Hapoalim's profit was also hit by credit loss expenses of 469 million shekels, compared with 147 million a year ago. It attributed the large expense in part to one middle market client in New York and three corporate clients in Israel.
Hapoalim has in recent years reduced its exposure to large corporate clients as it focuses on the retail sector and small and medium size businesses.
"For the first time we are not exposed to any company by more than 15 percent of the bank’s capital," Chief Financial Officer Yadin Antebi said.
Barclays analyst Tavy Rosner said the main influence on Hapoalim's share price would be settling the U.S. investigation. "In our view this would pave the way to a dividend payout increase from the current 30 percent to 50 percent," he said.
Hapoalim declared a dividend of 41 million shekels, or 30 percent of net profit, for the quarter.
Leumi's board set a payout ratio of 20 percent of quarterly profit starting in the first quarter of 2017.
Both banks have reduced headcount, with Hapoalim cutting over 300 workers in 2016 to 11,628.
Leumi's workforce decreased by more than 1,000 employees in 2016, with most leaving towards the end of the year, so a further reduction in salary expenses will be reflected in 2017.
Leumi's quarterly net profit rose to 443 million shekels from 431 million a year ago but below a forecast of 468 million shekels in a Reuters poll of analysts. It had credit loss expenses of 46 million shekels versus 33 million a year ago.
Additional reporting by Steven Scheer; Editing by Edmund Blair