Israel Discount Bank Sells Shares to Boost Capital Buffer

  • Bank selling stock discounted as much as 5 percent: official
  • Bank says needs more capital to cover growth in loan book

Israel Discount Bank Ltd. surprised investors with its second share sale in as many years, citing the need to raise capital to backstop a bigger loan book. The stock plunged.

Israel’s fourth-largest bank, announcing the plan in a regulatory filing, didn’t say how much it is seeking to raise. The bank will carry out the sale Monday at a minimum of 6.75 shekels a share, or 5 percent below Sunday’s closing price, a senior official at the lender said.

Discount needs to bring its capital level in line with the “rapid growth of the bank’s credit portfolio," it said in its statement to the Tel Aviv stock exchange. The bank reported 133.1 billion shekels ($35 billion) in loans at the end of June, 5 percent more than at the end of last year.

It also said the cash will allow it to expand the business and increase its profitability and efficiency.

Israeli banks have adopted measures including job cuts, branch closures and asset sales to free up capital for their Tier 1 ratios, a regulatory measure of financial strength. Earlier this month, Discount said it will reduce its work force by 1,000 employees within five years.

‘Little Sense’

"The offering is a surprise to us," Citigroup Inc. analyst Michael Klahr wrote in a note to clients. "Over the last 12 months, bank management has consistently conveyed the message that once core Tier 1 minimum requirements are surpassed the bank will start paying dividends, in 2017. It makes little sense to us to raise capital today, only to pay all or part of it back to shareholders in six to 12 months time as a dividend."

Discount reported a Tier 1 ratio of 9.5 percent at the end of June, above the 9.2 percent required by the Bank of Israel by 2017. Klahr expects the share sale to add another half a percentage point. Shares dropped 4 percent to 6.82 shekels as of 1:13 p.m. in Tel Aviv, the most since August 2015. 

The bank last sold 300 million shekels of shares in December 2014, according to data compiled by Bloomberg. It last paid a dividend eight years ago, the data shows.

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