Written by: Aaron Katsman | November 4, 2008
Stanley Fischer, Governor of the Bank of Israel, spoke yesterday on the stability of the Israeli banking system. Fischer, along with many other public figures has gone out of his way to keep telling the public that the local banking system is sound. While scaring the public about bank failures is irresponsible, don’t Israelis deserve to be told the truth about what is going on? How about a little honesty from our leaders.
If everything is so rosy, then why does the BOI have a plan to stream money to the local banks in the event of a credit freeze? Is this prudent planning, or cause for worry?
As reported in Globes, Fischer spoke about how disciplined the local Israeli banks have been. “In addition, Israel’s banks had no sub-prime exposure. “Israel’s banks said ‘No’ to this paper,” said Fischer.”
Really? That’s not how I remember it. Bank in March Bank Hapoalim wrote off hundreds of millions of dollars. According to Reuters, “Hapoalim, whose shares have slid some 30 percent so far in 2008, said it posted impairments of 1.18 billion shekels, or $334 million, for its U.S. asset-backed securities portfolio. It had previously said it would write off around $300 million in the fourth quarter due to a decline in the value of its U.S. structured investment vehicle (SIV) holdings.” Other local banks also wrote off smaller amounts.
In the aforementioned Globes article Fischer also said, “Also the banks applied responsible credit policies.” Really? Is loaning money to the wealthiest ten families so that they can spend billions of dollars on international real estate, at the height of the real estate bubble, called responsible lending?
Shouldn’t the central bank head come clean with the Israeli public?
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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.
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Bank of Israel,
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asset backed securities,
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prime exposure,
real estate bubble,
Stanley Fischer,
structured investment vehicle
Written by: Zack Miller | December 3, 2007
By Zack Miller
IsraelNewsletter.com
Bloomberg ran an article over the weekend saying that Bank HaPoalim was in due-diligence discussions over an undisclosed Russian bank.
Somehow, although we don’t yet know the name of the bank, we do know the size of the transaction. Bloomberg pegs Ma’ariv’s estimate of the transaction size at $150 million for a 74 percent stake in the firm, representing 3.5x on assets.
“Some of the payment will be used to increase the bank’s capital and to open more retail branches, Ma’ariv said. Hapoalim believes the Russian bank will be able to earn a 12 percent to 13 percent return on equity, it said.”
This follows in-line with our thesis that Israeli banks, utilities, and cellular firms need to look towards international expansion to continue growth. I wrote a while back that Israeli firms can continue to squeeze more out of their customers (banks by offering more services and cellular firms by introducing data to boost ARPU) but Israel is a mature market. Mature markets are defined by penetration of services.
My partner and esteemed perma-bull, Aaron Katsman, has written about the spillover effects from the subprime/real estate issues in the US and how they might affect Israeli banks.
Bank Hapoalim wants to use this investment to increase its retail presence. Russia looks prime for expansion.
Disclosure: Author’s fund has no position in any stock mentioned as of 11/09/2007.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@israelnewsletter.com
Written by: Zack Miller | November 9, 2007
Zack Miller
IsraelNewsletter.com
As my colleague, Aaron Katsman, opined on these pages just a few months ago, Israel would not be immune to the subprime mess that began in the U.S., and through complicated collateralization, spread throughout the world. At the time, news spread quickly in Israel that a leading developer, Heftziba, was becoming insolvent and that its onerous debt of $400M (large in relative terms) quickly sacked any chance of paying back investors, banks that financed the company, and lastly, homeowners who purchased properties through Heftziba.
Well, Aaron’s prediction was spot on. Haaretz reported today that one of Israel’s largest banks, Bank Hapoalim, is suffering from the US mortgage malaise as well. Says Haaretz:
Hapoalim has a bond portfolio with American mortgage-backed securities valued at about $3.5 billion. So far the crisis has cost the bank $120 million. For the second quarter, Hapoalim had reported only a $35 million loss, but in an immediate announcement to the stock market yesterday evening in response to a demand from the Israel Securities Authority (ISA), the bank said that figure was now much higher.
Hapoalim claims that these bonds are only AAA government-type bonds but hasn’t been fully forthright about what they have on the books. Bank Discount, another large Israeli bank, apparently has some significant exposure.
Look for more banks to follow-suit as over the past few years, many of the Israeli banks and financial institutions were buying large swaths of assets overseas, including in real estate-related exposure.
Investors in the US see how painful having invested alongside poor risk managers, let’s hope (and pray!) that Israeli risk managers have acted more prudently.
Disclosure: Author’s fund has no position in any stock mentioned as of 11/09/2007.
Please see our Disclaimer HERE.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email zack@profile-financial.com
