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Leumi Drops as Citigroup Says Outlook Worsening: Tel Aviv Mover

Bank Leumi Le-Israel Ltd. and Bank Hapoalim Ltd. fell to the lowest levels since 2009 as Citigroup Inc. said the outlook for Israeli banks is worsening amid a slowing economy and higher capital requirements.

The shares of Leumi, Israel’s largest bank by assets, retreated 2.2 percent to 8.801 shekels, the lowest since April 2009, at the 4:30 p.m. close in Tel Aviv. Hapoalim dropped 2 percent to 10.91 shekels, the lowest since July 2009. Israel Discount Bank Ltd., the country’s third-largest bank by assets, dropped 0.4 percent to 3.695 shekels. The TA-25 benchmark index advanced 0.9 percent.

“While stocks have already declined significantly in the last 12 months to reflect weaker operating performance, we don’t think they are going to rally in the foreseeable future,” Michael Klahr, an analyst at Citigroup in Tel Aviv, said today by phone. Klahr downgraded Leumi and Discount to neutral from buy and maintained Hapoalim at buy.

Economic growth is expected to decelerate to 3.1 percent this year from 4.8 percent in 2011, the central bank said on June 25. The economy grew an annualized 2.7 percent in the first quarter, the slowest pace since 2009.

The central bank is requiring all banks meet higher core tier 1 requirements by the end of 2014.

“Higher core tier 1 reserve requirements will mean less lending and lower dividend payouts, and will weigh on return on equity,” Klahr wrote in an e-mailed report today.

Leumi has slumped 47 percent in the past 12 months, compared with a decline of 38 percent in Hapoalim and a 46 percent drop in Discount Bank. The benchmark TA-25 index has fallen 16 percent in the same period.

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