Jan. 10 (Bloomberg) -- Bank Hapoalim Ltd. became the first Israeli lender to report losses from the collapse of the U.S. subprime mortgage market as it reduced the value of structured investment vehicles and mortgage-backed bonds by $380 million.

Hapoalim, Israel's second-biggest lender by assets, took a $290 million charge on its SIVs for 2007, the Tel Aviv-based company said in a statement. It also wrote down $90 million related to mortgage securities, which won't result in a charge.

``The writedowns reported are significantly higher than we expected,'' said Yuval Ben-Zeev, an analyst at Clal Finance Batucha Investment Management Ltd. in Tel Aviv, which forecast total writedowns of about $100 million. ``This will hurt the bank's capital adequacy ratio and will make it more difficult to expand its credit and grow abroad.''

SIVs, investment companies that borrow short-term to buy higher-yielding assets including mortgage securities, have been unable to issue debt as the worst U.S. housing slump in 27 years caused investors to shun all but the safest government notes. The net asset value of SIVs, or what would be left after paying senior debt, slumped last year to 66 percent of capital from 102 percent, according to Moody's Investors Service.

Hapoalim shares dropped 0.55 shekel (15 cents), or 2.9 percent, to 18.15 in Tel Aviv, the lowest since July 2006.

`Conservative Estimate'

The Bank of Israel ordered lenders in September to disclose their holdings of asset-backed debt. Concern that losses would erode Hapoalim's profit caused Citigroup to cut its rating on the bank to ``hold'' from ``buy'' and Tel Aviv-based Leader Capital Markets Ltd. to lower Hapoalim to ``market perform'' from ``market outperform'' in the last two months.

``The writedowns on our SIV holdings are due to developments in the U.S. financial markets in recent weeks and constitute a conservative estimate,'' Hapoalim said in its statement. ``Despite writedowns of this scale, the bank expects to end the fourth quarter with a profit.''

Hapoalim said 98.8 percent of the mortgage-backed securities it owned had the highest AAA credit ratings. The investments were made through the bank's offices in London and New York. It expects to post a net return on equity of 12 to 13 percent, excluding one-time items.

Paulson's Bailout

Financial companies have written down about $100 billion from the value of assets linked to U.S. mortgages.

Concern that SIVs would be forced to sell their holdings, further roiling credit markets, prompted U.S. Treasury Secretary Henry Paulson to initiate talks to set up an $80 billion bailout fund. Banks abandoned the initiative last month after rescuing their own SIVs.

SIV assets have fallen to about $282 billion from a peak of $400 billion last year, according to Standard & Poor's.

While banks led by Citigroup Inc. in New York and London- based HSBC Holdings Plc are bailing out their funds, non-bank SIVs will have to find about $70 billion to repay medium-term debt maturing this year, Merrill Lynch & Co. analysts said this week.

To contact the reporter on this story: Tal Barak in Tel Aviv at tbarak@bloomberg.net

Last Updated: January 10, 2008 11:37 EST