What does the York deal say about Hapoalim? Nothing good, say analysts
By Sharon Shpurer and Reuters
Tel Aviv's financial analysts are scratching their heads over York Capital's acquisition of 4% of Bank Hapoalim.
"It seems to be due to pressure at Hapoalim," banks analyst Alon Glazer of Leader Capital Markets said yesterday, "since the contribution to the bank's capital is not particularly dramatic, at only 0.22%, and the improvement to its capital adequacy ratio won't be much because of the shares deal. It won't repair the damage caused by the credit crisis. The bank is apparently anticipating additional provisions, because we still haven't seen the end of the writedowns and losses," Glazer said.
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"It looks like an attempt at preventive medicine," Glazer continued, "and that the bank would rather have a quick capital injection when the situation affords it."
Glazer isn't alone in having reservations about the deal. Analyst Joseph Wolf of Lehman Brothers wrote in a research note on the deal: "We believe this is good news for investors as an experienced investment group is indicating its support for the bank, and this may allow the bank to hold onto assets - such as the credit card unit - that it may have had to sell to shore up capital without outside help.
"On the other hand," Wolf continued, "the need to seek a cash infusion highlights the extent to which Hapoalim has been forced to resolve its mortgage-backed securities investment overhang - which has certainly distracted senior management from focusing on the core business of the bank for some time now," he added.
Clal Finance Batucha analyst Yuval Ben-Ze'ev is also less than thrilled about the sell-off. "At first glance you might think it was a vote of confidence from a major foreign investor that can impart its experience to Bank Hapoalim," he said. The thing is: "In our estimation, that's not the case. We think the deal points to the high-pressure situation of the bank. Why are we saying that? The main reason is the price. It expresses an equity multiple of only 0.92. In other words, the bank is raising capital at a level that is below its own shareholders equity, and that makes us wonder what is leading Bank Hapoalim to raise capital at that price?"
Ben-Ze'ev thinks the York deal suggests that Hapoalim officials have decided that now is not the time to be floating the bank's credit-card subsidiary Isracard (which would otherwise probably be the preferred alternative for raising capital). But this just isn't the time to float companies, Visa's successful public offering on Wall Street notwithstanding.
Like Leader Capital, Lehman Brothers is not convinced that Bank Hapoalim has finished saying its piece on its provisions and writedowns prompted by its exposure to mortgage-backed bonds. So far the bank has announced a writeoff of $290 million, which is expected to affect its net profits for 2007, in addition to a writedown of about $500 million as a result of the decline of the value of its MBS portfolio.
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