Hapoalim Sets Aside Another $246 Million for U.S. Tax Probe

(Bloomberg) -- Bank Hapoalim Ltd., Israel's second-biggest bank, set aside an additional $246 million to settle a lengthy tax evasion investigation by U.S. authorities. The shares fell the most in more than two months.

The extra provisions bring the total amount to $611 million, according to a Tel Aviv Stock Exchange filing on Thursday. The Department of Justice has been investigating the Israeli bank for allegedly helping U.S. clients evade taxes.

Negotiations with the DoJ are ongoing, though the new amount takes into account three elements of the upcoming fine if the sides reach an agreement: The amount of tax Hapoalim's U.S. customers were supposed to pay the U.S. government, revenue from that business and the fine that the lender may pay.

The total provision is Hapoalim's “estimate of the minimum exposure” to the investigation, the bank said in a statement. “It is reasonable to assume that the total amounts that the bank will pay” to U.S. authorities “will be significantly higher.”

Dividend Payment

Resolving the DoJ investigation would allow the bank to reinstate its dividend, which has been halted for the past few quarters as Hapoalim readies itself for a sizable fine.

Bank Leumi Le-Israel Ltd., Hapoalim's top rival, settled its cases with American authorities in late 2014 and has used that time to usurp Hapoalim as the country's largest lender.

“Originally, we were stuck in a concept that Hapoalim and Leumi had similar operations in the U.S., and were similar-sized banks, and so Leumi's fine of $400 million would be more or less the number we would expect for Hapoalim,” said Saar Golan, a trader at Meitav DS Investments Ltd. “But that doesn't seem to be the case.”

Hapoalim shares dropped 2.7 percent, the most since Dec. 27, to 24.41 shekels at 10:02 a.m. in Tel Aviv. It was the worst-performing bank among its peers.

While the news was “unfortunate,” Hapoalim is in a “strong capital position” to weather heavy fines, Tavy Rosner, an analyst at Barclays Plc, wrote in an emailed note to clients. Rosner estimated that Hapoalim could absorb an “extreme scenario” of as much as $2.4 billion in litigation costs and still pay a dividend this year and the next.

To contact the reporter on this story: Yaacov Benmeleh in Tel Aviv at ybenmeleh@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Ross Larsen

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