Israeli banks have written down from their shareholders' equity $1.27 billion (about NIS 5 billion on the basis of the December 31 2007 shekel-dollar exchange rate) since the outbreak of the sub-prime mortgage crisis nine months ago. The write-downs were the result of the banks' exposure to mortgage-backed securities (MBS), collateralized debt obligations (CDOs), structured investment vehicles (SIVs), and synthetic CDOs (SCDOs). The write-downs amount to about 13% of banks' portfolios in these instruments.
The banks' aggregate exposure to these instruments is $9.66 billion (NIS 37 billion), amounting to 63% of their shareholders' equity. $7.55 billion of this amount is held in MBSs.
In view of the loss in fair value of the portfolios, the banks have been forced to recognize a temporary write-down in value of $874 million in their capital reserve funds and a permanent write-down of $399 million, which is recorded as a loss. The figures are based on the banks' financial reports for 2007 and announcements made during the first quarter of 2008.
In preparation for the publication of the first quarter financial reports in late May, the banks will revalue their portfolios, and sources predict that they will make more write-offs.
Bank Hapoalim (TASE: POLI; LSE:80OA) and Mizrahi Tefahot Bank (TASE:MZTF) owned $425 million in SIVs, a financial product that has been revealed as especially risky. Mizrahi Bank has written off its entire $25 million SIV portfolio, and Bank Hapoalim has written off 81% of its portfolio, amounting to $324 million, of which $316 million will be recorded in the profit and loss statement.
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2008
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