Leumi Asked to Consider Bonus Clawbacks After U.S. Tax Fine

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The Bank of Israel asked Bank Leumi Le-Israel Ltd. to set up an independent committee to examine management performance and bonuses after the lender agreed in December to pay a fine to U.S. authorities in a tax probe.

Leumi, Israel’s second-largest lender, agreed the $400 million fine after a seven-year U.S. probe into offshore tax evasion that predominantly focused on Switzerland. The settlement triggered investigations by Israel’s attorney general, the state comptroller and the banks regulator.

The independent committee should study management performance during the years 2008-2010, the central bank said in a report on the company’s U.S. activities filed by Leumi to the Tel Aviv Stock Exchange. The company should also review bonuses paid, including those to the chairman, the bank’s chief executive officer and the head of international private banking, in light of the “heavy damage” caused to Leumi.

“The report signals that managers cannot shirk responsibility, even after they leave their post,” Meir Slater, Tel Aviv-based head of research at Bank of Jerusalem Ltd., said by phone. “It has no impact on the bank itself, as it relates to a previous management.”

Leumi said in response to the Bank of Israel report that in March it set up an independent committee to study the matter. The panel will study whether damages should be sought from current or former employees, including bonus clawbacks, Leumi said in February.

The bank “did not identify and estimate the overall risks,” and did not manage them as required, the Bank of Israel said. Even if Leumi is not required to report on tax issues, “that does not exempt it from its duty to manage risks, and does not allow its services to be used for tax evasion,” the Bank of Israel said.

Leumi shares fell 0.8 percent at the close of trading in Tel Aviv.

Two other Israeli banks, Bank Hapoalim Ltd. and Mizrahi Tefahot Bank Ltd., have set aside cash to cover costs resulting from the U.S. probe.

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