19th May 2009 10:17
BANK LEUMI LE-ISRAEL B.M.
(GUARANTOR - GUARANTEED EURO MEDIUM TERM NOTE
PROGRAMME OF LEUMI INTERNATIONAL INVESTMENTS N.V.)
Summary Translation of Immediate Report
Bank Leumi le-Israel B.M.
Registration No. 520018078
Securities of the Corporation are listed on The Tel Aviv Stock Exchange
Abbreviated Name: Leumi
Leumi House, 34 Yehuda Halevi Street, Tel Aviv 65546
Phone: + 972 3 5148111, + 972 3 5149419; Facsimile: + 972 3 5149732
Electronic Mail: Yaelru@bll.co.il
3 May 2009
To: Israel Securities Authority (www.isa.gov.il)
The Tel Aviv Stock Exchange (www.tase.co.il)
Immediate Report regarding an Event or Matter falling outside the Ordinary Course of Business of the Corporation
Pursuant to Regulation 36(a) of the Securities (Periodic and Immediate Reports) Regulations, 1970
Nature of Report: Lowering of the Bank's Ratings
Bank Leumi le- Israel B.M. (the "Bank") hereby announces that the S&P Maalot and Standard and Poor's rating agencies have announced the lowering of the Bank's ratings.
With regard to the Standard and Poor's rating agency, see attached notice and the website of Standard and Poor's (www.standardandpoors.com).
With regard to the S&P Maalot rating agency, the following is a summary of the additional information contained in said notice that does not appear in the notice of Standard and Poor's:
S&P Maalot announced the lowering the of the issuer rating of the Leumi Group from 'ilAAA' to 'ilAA+', with the ratings outlook being lowered from "stable" to "negative".
In addition, the issuer rating of Leumi Mortgage Bank Ltd., a core subsidiary of Bank Leumi, is lowered from 'ilAAA' to'ilAA+', with a ratings outlook being lowered from "stable" to "negative".
Ratings List for Bank Leumi:
Issuer rating - 'ilAA+'/Negative
Subordinated capital notes - 'ilAA'/Negative
Upper Tier II capital - 'ilA'/Negative
Ratings List for Leumi Mortgage Bank:
Issuer rating - 'ilAA+'/Negative
Subordinated capital notes - 'ilAA'/Negative
Date and time at which the corporation first became aware of the event or matter:
30 April 2009 at 14:00.
________________________________________________________________
Name of Electronic Reporter: Yael Rudnicki, Position: Group Secretary
POB 2 Tel Aviv 61000, Phone: + 972 3 5149419, Facsimile: + 972 3 5149732,
Electronic Mail: Yaelru@bll.co.il
Research Update:
Bank Leumi le-Israel B.M. Long-Term Rating Lowered To 'BBB+'; Outlook Negative
Primary Credit Analyst:
Magar Kouyoumdjian, London (44) 20-7176-7217;[email protected]
Secondary Credit Analyst:
Yaniv Cohen, Tel Aviv + 972 3 7539722;[email protected]
Table Of Contents
Rationale
Outlook
Ratings List
Research Update:
Bank Leumi le-Israel B.M. Long-Term Rating
Lowered To 'BBB+'; Outlook Negative
Rationale
On April 30, 2009, Standard & Poor's Ratings Services lowered its long-term counterparty credit rating on Israel-based Bank Leumi le-Israel B.M. (Leumi) to 'BBB+' from 'A-'. At the same time, the 'A-2' short-term counterparty credit rating on Leumi was affirmed. The outlook on Leumi is negative.
The rating actions reflect our view of the negative impact of the
global and domestic economic and market downturn on Leumi's earnings and asset quality. Standard & Poor's anticipates that the global recession could severely affect Israel's economy in 2009. We believe that growth prospects will deteriorate markedly compared with previous years, with real GDP contracting by 1.5% in 2009, with only a modest 0.8% growth rate forecast for 2010.
With both the global and Israeli economies and markets already slowing markedly in 2008, Leumi reported a loss in the fourth quarter of the year, driven by losses on its securities and interbank portfolio as well as significantly increased credit provisions. In our view, earnings will remain suppressed in the short-to-medium term given the ongoing asset quality pressure and the associated credit provisioning needs, as well as margin
contraction due to the low interest rate environment.
The ratings on Leumi are based on our view of its strong market position and domestic banking franchise, sound funding profile, and good liquidity. The ratings are constrained by its vulnerable loan quality due to the economic downturn and its impact on domestic borrowers, in particular large Israeli conglomerates, which are highly leveraged and are experiencing tight liquidity. In addition, the ratings are constrained by weakened short-term earnings prospects, with credit provisions expected to remain high and margins to be squeezed, as well as further potential losses associated with the securities portfolio; risky operating environment (the Israeli economy is concentrated and vulnerable to shocks); tight core capitalization given the potential risks of the operating environment, concentrations, and unrealized losses associated with the securities and interbank portfolio; lost opportunities for some recurring revenues due to the divestment of certain operations; and a mature domestic market, which limit domestic growth prospects.
We consider Leumi to be a systemically important bank to the State of Israel (foreign currency A/Stable/A-1; local currency AA-/Stable/A-1+), which we have classified as interventionist toward its banking sector. Therefore, the long-term rating on Leumi benefits from a one-notch uplift from its stand-alone creditworthiness to reflect expected government support if needed,
as demonstrated in the past. As the largest bank in Israel, Leumi maintains a good market position with about 30% of total domestic banking assets at Dec. 31, 2008.
Outlook
The negative outlook reflects our expectation that Leumi's financial profile and business prospects, while still considered satisfactory, will be adversely affected by the ongoing setbacks in its operating environment, particularly due to the economic slowdown and weaker capital markets both domestically and globally. If these setbacks are greater than we anticipate, Leumi's creditworthiness could weaken further. A significant increase in problem loans (particularly if one or more of the large Israeli conglomerates' creditworthiness weakens substantially, given borrower concentrations), and the associated erosion of earnings and capitalization, would likely lead to a downgrade.
The bank also has potential vulnerability, in our view, to further losses on its securities portfolio and interbank exposures, with material unrealized losses. Furthermore, any significant escalation in economic and political turbulence in Israel could materially affect asset quality and financial performance, and could put pressure on the ratings.
Over the longer term, we believe that a less risky operating environment could lead to improved creditworthiness for Leumi. Furthermore, if economic prospects strengthen and loan quality, cost efficiency, and capitalization also improve, this could lead to a positive rating action.
Ratings List
To From
Downgraded; Ratings Affirmed
Bank Leumi le-Israel B.M.
Counterparty Credit Rating
BBB+/Negative/A-2 A-/Stable/A-2
Certificate of deposits
BBB+/A-2 A-/A-2
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