Leumi must dance to the US tune

Irit Avissar

This affair is liable to cost Bank Leumi NIS 2 billion in damages, 7% of its equity.

"We'll provide an additional NIS 460 million in the coming quarter for the US clients affair. We'll be glad to put this matter behind us and set the uncertainty to one side. Ending the affair is important to us, and constitutes a significant competitive advantage for us. Keep in mind that this investigation involves other banks around the world," said Bank Leumi (TASE: LUMI) CEO Rakefet Russak-Aminoach last August. Speaking at the bank's shareholders meeting, Russak-Aminoach boasted that in contrast to Bank Hapoalim (TASE: POLI) and Mizrahi Tefahot Bank (TASE:MZTF), whose investigation by the US authorities was just beginning, Bank Leumi has already disposed of the matter - the provisions have ended, and the cloud of uncertainty has been removed. In the two months since then, however, it has been shown that Russak-Aminoach was over-optimistic. In the US, it isn't over until you get an official letter saying that it's over.

This affair is liable to cost Bank Leumi NIS 2 billion in damages before the investigation is over. That is a considerable sum that constitutes more than just a slap on the wrist: NIS 2 billion is 7% of the equity of Israel's second largest bank, and is equal to the bank's entire profit in a good year. Furthermore, recent events show that NIS 2 billion may not be the final figure. Who knows - other regulators may demand a share of the fine.

It is no secret that the US authorities have decided to act aggressively and with full force against tax evasion by US citizens, and are making the banks that have allowed their customers to exploit banking secrecy the main tool in their campaign. It appears, however, that the passage of time is only making the US authorities more and more aggressive; they are unhesitatingly levying heavy fines. They are doing it just because they can. No foreign bank will risk getting mixed up with the US authorities. Sanctions like invalidating a US license or restrictions on business in dollars are a death sentence for most banks. Banks therefore prefer to end things pleasantly by paying whatever is asked.

Published by Globes [online], Israel business news - www.globes-online.com - on October 29, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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