As poor macro-economic figures and forecasts continue to pile up, UBS has cut its recommendation on Bank Leumi (TASE: LUMI) to "Sell" from "Buy" and warns of a steep loss for the bank in its fourth quarter results.
UBS analysts Darren Shaw and Rami Myerson said today that high doubtful debt provisions and write downs from unrealized losses on its large securities portfolio could lead to a "significant" profit warning for the fourth quarter results. The analysts see a NIS 1 billion hit on the income statement, in addition to a NIS 1 billion asset write-down on its balance sheet, on the bank's fourth quarter report.
As a result, UBS now expects a fourth quarter net loss of NIS 400 million, on top of the NIS 1 billion asset write-down through the balance sheet.
The analysts find that problem debt provisions by the bank could surpass the levels of the 2001-2002 recession.
The worsening macro-economic environment will weigh on the bank. The analysts also see that unlike 2008, when the bank's Israel Chemicals Ltd. (TASE: ICL) stake held via Israel Corp. (TASE: ILCO) added to its profits, the bank will see a drop in income from that holding.
Our 09 forecasts are c80% below consensus.
Shaw explains that Leumi has a very large securities portfolio of NIS 42 billion, compared with equity of NIS 20 billion, and Leumi may have to mark down these assets significantly. He estimates that a 10% loss in the portfolio would amount to about a 14% after-tax drop in equity.
Shaw also slashed his target price for Bank Leumi to NIS 7.50 from NIS 13.
Yesterday, rival Bank Hapoalim (LSE: BKHD; TASE: POLI) warned of a NIS 250 million fourth quarter loss.
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2009
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