The ongoing deterioration in the major banks profitability over the past year has depressed their market caps to well below their equity. The bank with the lowest capitalization relative to its shareholders equity is Israel Discount Bank (TASE: DSCT ), which trades at just 48% of its 2001-end equity, while the bank that has fared the best is Mizrahi (TASE: MZRH ), trading at 75% of equity.
The weighted cumulative discount rate of the major banks is 33%, meaning the entire Israeli banking sector is trading one-third off its equity. During the boom, the banks traded at values 20-30% above their asset value.
This sharp drop in the absolute and relative values of the banks translates in damages to the largest shareholders.
In Bank Hapoalim(TASE: POLI ), the heaviest damage is to the Dankner family, partner in control of the bank via Israel Salt Industries (TASE: SALT ). The Arison group is also suffering from the drop in Bank Hapoalim's value, but the group has much more financial breathing room.
In Bank Leumi Le-Israel(TASE: LUMI ), the most serious damage is to Shlomo Eliyahu, who holds 10% of the bank which he bought at much higher prices than those currently prevalent. The State of Israel holds a41.7% stake in Leumi and is having difficulties selling it.
The state is also paying dearly for its 57.1% holding in Discount Bank, which it gave up trying to sell over three years ago. Discount¿s losses and the drip in its value have also cost the IDB group, which still holds a 12.5% share in the bank.
First International Bank's involvement in loans for leveraged deals and the damage to its profitability have eroded the discount at which it trades to the lowest in the banking sector except for Discount, hurting controlling shareholders the Safra family and Discount Bank itself, which holds 26.5% if First International Bank capital shares.
The families that bought into the privately-controlled banks financed the acquisitions through large bank loans from local sources, offering their bank shares as collateral on loans taken from other banks.