Leumi Seeks to Raise Capital by Converting Worker Rights

Bank Leumi Le-Israel, under pressure from regulators to strengthen its reserves, has opened negotiations with its employees on an agreement to convert their share rights into stock.

The talks concern 1.15 billion shekels ($295 million) worth of rights held by workers, Israel’s second-largest lender said in a stock exchange statement Monday.

That would eliminate some of the uncertainty associated with these employee benefits, said Meir Slater, head of research at Bank of Jerusalem Ltd., who has an outperform rating on the stock. “In the long term, there’s no doubt this will be a positive for the bank,” he said. “But it’s also a negative, because it dilutes the value of the stock.”

The bank also said it will team up with Harel Insurance Investments & Financial Services Ltd. to provide 8 billion shekels of mortgage loans over the next two years. While the partnership may mean it will sacrifice some revenue from the loans, it allows the bank to expand lending with potentially less impact on its capital ratio.

Bank Leumi is under orders from regulators to shore up its Tier 1 capital ratio. The measure of financial strength stood at 9.3 percent at the end of the third quarter, 1 percentage point below what the Bank of Israel has demanded by 2017.

If Leumi meets the requirement, it may be in a position to distribute the first dividend since June 2011, according to Micha Goldberg, analyst at Excellence Nessuah Services Ltd. Chief Executive Officer Rakefet Russak-Aminoach has cited regulatory requirements as a challenge to paying dividends.

Bank Leumi shares fell 0.4 percent to 12.45 shekels, compared to the 0.7 percent gain in the Tel Aviv 25 Index.

Before it's here, it's on the Bloomberg Terminal.