Discount Bank profit down on one-off items

Israel Discount Bank on Monday reported a sharp drop in fourth-quarter profit due to nonrecurring items, in line with last month’s profit warning, but underlying fundamentals were strong. Once Israel’s most troubled bank, the third-largest lender has begun to turn itself around, cutting costs, selling off unprofitable assets and improving its credit portfolio. “I am very optimistic, even though I know the path is still long,” Discount chairman Joseph Bachar told a news conference on Monday. Discount earned NIS 5 million ($1.2m.) in the quarter, compared with NIS 72m. a year earlier. Excluding nonrecurring items such as an early retirement provision and a NIS 50m. loss from the sale of Discount Bank Latin America, net profit was NIS 237m. The bank warned last month its quarterly profit would be near zero due to nonrecurring items. Discount’s headcount dropped by 560 positions, or 8 percent, in 2014. Its shares were up 2.5% to NIS 6.55 in afternoon trading on Monday, compared with a flat blue-chip Tel Aviv-25 index and a 0.8% rise in the banking index. “Discount is our top pick among Israeli banks,” Barclays analyst Tavy Rosner, who rates the shares “overweight,” said in a clients’ note. “We believe the bank has room to rerate despite the challenging macro environment.” Trading at a 33% discount to its historical average, the valuation does not give new management credit for its strategic plan, he added. After years of shrinking, the bank’s loan book grew by 3.7% year over year, driven by 6.8% growth in consumer loans. In addition to selling its Latin American unit, Discount is in the process of closing its London branch and is reviewing its small Swiss operation. At the same time, it is adding resources to its New York branch, where it sees strong growth potential. “We believe the United States is right for us, and we have a significant bank there with critical mass,” CEO Lilach Asher-Topilsky said. Discount’s core Tier 1 capital to risk-weighted assets rose to 9.4% under Basel 3 from 8.9% at the end of 2013, surpassing the banking regulator’s minimum requirement of 9%.