IBI cuts recommendations on Israeli bank shares

August 25, 2011 22:40

"We believe that the risk of investing in Israeli bank shares has risen sharply"; ‘Buy’ recommendation reiterated only for Discount Bank.

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Bank of Israel Governor Stanley Fischer: Exporters

Bank of Israel Governor Stanley Fischer: Exporters. (photo credit: Ariel Jerozolimski)

“As a consequence of the drama in international markets in the past few weeks, which has bred rising uncertainty about emerging from the financial crisis in Europe, we believe that the risk of investing in Israeli bank shares has risen sharply,” IBI Investment House Ltd. said in a statement on Thursday.

IBI cut its recommendation for Bank Hapoalim, Bank Leumi, Mizrahi Tefahot Bank, and First International Bank of Israel to “Neutral” and reiterated its “Buy” recommendation only for Israel Discount Bank.

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IBI also cut its target prices for all five banks: Bank Leumi to NIS 15.90 from NIS 20.50; Bank Hapoalim to NIS 17 from NIS 20.50; Discount Bank to NIS 8 from NIS 9; First International Bank to NIS 52 from NIS 57; and Mizrahi Tefahot Bank to NIS 36 from NIS 42.

IBI says that since banks’ assets normally equal 15 times their shareholders’ equity, the recent sharp falls in bank shares in Israel and internationally translates into a 1 percent drop in their assets. The crisis in Europe will inevitably affect Israeli banks, in the form of higher credit losses than the banks faced in recent quarters.

IBI says that, despite the downgrade, Israeli banks are sound and stable in both absolute terms, and in comparison with their foreign peers. The banks’ core capital adequacy ratios have been 6-8% in the past two years, and the Bank of Israel strictly enforces international banking standards.

IBI notes that Israel’s banks survived the 2008 crisis without government capital injections or interventions.

Bank Hapoalim’s share price fell 2.6% by mid-afternoon on Thursday to NIS 14.14, Bank Leumi’s share price fell 3.1% to NIS 12.94, Discount Bank’s share price fell 1.8% to NIS 5.74, Mizrahi Tefahot Bank’s share price fell 0.1% to NIS 32.17, and First International Bank’s share price fell 2.7% to NIS 43.52.

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