Sources inform ''Globes'' that the State Comptroller has found alleged flaws in the conduct of the Bank of Israel Banking Supervision Department concerning the sub-prime investments by Bank Hapoalim (TASE: POLI; LSE:80OA). The bank has had to write off $1.5 billion on these investments.
State Comptroller Micha Lindenstrauss made the statement in a draft report sent to Supervisor of Banks Rony Hizkiyahu. The State Comptroller's investigation lasted a year, and included the Banking Supervision Department's conduct about Bank Hapoalim's losses on the investments.
The sources added that the State Comptroller found that the Bank of Israel had only partial information about Israeli banks' exposure to risky financial instruments. The State Comptroller asked the Israel Securities Authority for correspondence with Bank Hapoalim concerning demands for disclosure and clarifications by the bank over its sub-prime investments.
The State Comptroller recommends quickly adopting International Financial Reporting Standards (IFRS) for greater transparency about the real value of assets in companies' financial reports. It also recommends increased cooperation between the Securities Authority and the Banking Supervision Department.
The Bank of Israel is now formulating its response to the State Comptroller. Representatives of the two agencies are due to meet on February 19. Sources close to the Bank of Israel say that it has responses to all of the State Comptroller's points.
The Office of the State Comptroller said in response, "We're waiting for answers. The investigation is still underway, and we cannot disclose additional details without harming the substance of the investigation."
Published by Globes [online], Israel business news - www.globes-online.com - on February 3, 2009
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