Israel Discount Bank (TASE: DSCT) US subsidiary Israel Discount Bank of New York is facing further increases in the costs of its money laundering settlement, which will also impact the bank's results for 2008. Discount Bank New York has reported that it will incur a further $5-6 million in costs, a sum equal to about 15% of its profit for 2007.
It is becoming clear with each quarter that passes, that Discount Bank New York's estimates' have been surpassed repeatedly, and that the cost of the requisite improvements and reviews are far higher than anticipated. The bank's current estimate puts the accrued settlement costs, including improvement and review expenses, at $51-52 million, for which provisions were been made in the years 2005 through 2008.
Under a settlement agreed upon with US regulatory authorities in 2005, Discount Bank New York paid a $16.5 million penalty. It also allocated $16.1 million in 2006 and a further $13.3 million in 2007 for costs arising from the requisite reviews and adjustments the bank undertook to bring it into compliance with regulatory guidelines. The bank estimates that it will incur an additional $5-6 million in costs in 2008.
In September 2007, accountancy firm KMPG submitted a report to state banking authorities in New York, detailing the level of efficiency shown by the bank in reducing the incidences of non-compliance with regulatory requirements. The authorities will reportedly decide on the basis of this whether to release the bank from the Cease and Desist order under which it has been operating under since November 2005. Until such time as its status is changed, the bank will not receive authorization for the expansion plans it is seeking in its business, and will continue to operate in a limited capacity under regulatory supervision.
The KPMG report found deficiencies in 352 issues, of which the bank's effort with respect to 95% of these were rated as 'highly' responsive and 5% rated as 'moderately' responsive.
Published by Globes [online], Israel business news - www.globes-online.com - on April 27, 2008
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