Israel’s Largest Bank Boosts Provisions for DOJ Tax Probe

  • Bank Hapoalim adds $70m to provisions for DOJ investigation
  • Provisions exclude possible fines from New York regulators

Bank Hapoalim Ltd., Israel’s largest bank, will set aside a further $70 million to settle a Department of Justice investigation into allegations it helped U.S. clients evade taxes. 

The increase will “materially impact" third-quarter results, and brings the total amount set aside to $120 million, according to an e-mailed statement from the bank on Thursday. That should reduce profit in the quarter to 629 million shekels ($167 million), Barclays Plc analyst Tavy Rosner said in a note to clients.

“The U.S. investigations have weighed on Hapoalim’s shares," Rosner said. "Today’s announcement shows that the bank is now having face-to-face conversations with the U.S. authorities, which could pave the way for a settlement in the coming months."

Resolving the investigation, which stretches back to at least 2011, will remove a significant impediment to raising dividends, Yadin Antebi, Hapoalim’s chief financial officer, said in August. Hapoalim wants to increase payouts to 50 percent of profit from 20 percent. 

The provisions, which don’t include possible fines from the New York Department of Financial Services, are not an admission of guilt regarding any claims it may face, the company said.

Hapoalim shares dropped 0.8 percent to 21.24 shekels as of 1:03 p.m. in Tel Aviv.

Concerns of Higher Fines

The fact that Hapoalim wants to increase dividends and close the investigation by the publication of its 2016 annual results “give the American authorities advantages in the negotiations," said Alon Glazer, vice president of research at Leader Capital Markets in Tel Aviv. "In the end, the DOJ is the strong party in the negotiations and that should influence the final amount."

By comparison, Bank Leumi Le-Israel Ltd., the country’s second-biggest bank, settled its cases with the U.S. government after agreeing to pay $400 million in fines in 2014. The bank paid $270 million to the Department of Justice and $130 million to NYDFS.

Fines totaling less than $200 million should be considered "good news" for Hapoalim, said Glazer, adding that anything more would be a "negative surprise."

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