Mizrahi Q2 profit slides on US tax probe provision

Mizrahi-Tefahot, the country's third-largest bank, reported a 48% drop in quarterly net profit on Thursday, as it hiked a provision to cover the potential settlement of a US tax evasion investigation.

Mizrahi said it earned NIS 207 million in the second quarter, compared with NIS 400m. a year earlier, and NIS 390m. forecast in a Reuters poll of analysts.

It said it set aside NIS 425m. in the quarter to cover a likely fine by US authorities. It had previously set aside NIS 161.9m.

Excluding the provision, net profit was NIS 472m. in the quarter.

Earlier this month, Mizrahi rejected a proposal from the US Department of Justice to pay a fine of $342m. to settle the US tax evasion investigation.

The bank said it believed any “reasonable calculation” based on the behavior of its employees as described by the Justice Department would result in a much smaller fine.

Eldad Fresher, Mizrahi's CEO, said the investigation was nearing the end.

“We intend to conduct an intensive dialogue, to the extent that it depends on us, in order to reach a proper settlement as soon as possible,” he said.

Due to the higher provision, Mizrahi said it opted against paying a dividend this quarter. In the first quarter, it had raised its dividend payout to 40% of net profit.

It cited a drop in its Tier I capital ratio, a key measure of financial strength, to 9.95% – less than required by the banking regulator – from 10.15% in June 2017, as well as a decline in its overall capital adequacy ratio.

Financing income before credit loss expenses rose to NIS 1.47b. from NIS 1.19b., while the credit loss provision climbed to NIS 90m. from NIS 42m.

Credit to the public in the quarter rose 5.6%, while deposits from the public grew 5.1%.

“The bank is showing strong performance in its current banking activity with continued growth in revenue, credit and deposits,” Fresher said.

“The bank will... return to a capital adequacy ratio of more than 10% in the next quarter, and the assessment is that we will be able to return... to a dividend distribution policy during 2019.” (Reuters)