had warned that it would lose money in the fourth quarter of 2000. But the extent of its losses were a rude shock to investors. Bank Discount today reported losing a massive NIS 195 million for the quarter, way beyond the sums predicted in its earnings warning released just two weeks ago.
The bad news is, 2000 may not be Discount's worst year this decade, admits chairman Arie Mientkavich. He says the bank will have a tough time rallying as long as the crises in the capital markets, the economy and Israel's political sphere persist. Mientkavich dodged a question about 2001.
CEO Giora Offer said that the bank's operating assumption is that the situation will persist throughout the quarters to come, and that 2001 will be a bad year too.
Offer predicted that the real estate industry will continue to suffer badly this year. Real estate has been in a recession since 1996. The sector had just began to show signs of recovering when the second
broke out in the fourth quarter of 2000. Offer pointed out that dropping demand for office space by hi-tech will also hurt builders.
Mientkavich and Offer estimated that Discount will have to continue making hefty provisions for doubtful debt in the real estate and hotel industries. Discount's exposure to both sectors comes to some NIS 11 billion. In 2000, Discount provisioned NIS 390 million for doubtful debt for companies belonging to these two sectors alone. That is 60% of its total provision for doubtful debt, even though these sectors comprise only 22% of the bank's credit portfolio.
The chairman added that the bank's traditionally rocky labor relations have improved.
Net loss of NIS 105 million for the year
The huge fourth quarter loss shoved the bank into the red for the year 2000, bringing its net loss to NIS 105 million, compared with a net profit of NIS 324 million for 1999.
The loss also reduces Discount's return on capital to a negative 2%.
During 2000 the bank made provision of NIS 700 million for doubtful debt, compared with NIS 558 million for 1999. Salary costs plus associated expenses came to NIS 2.295 billion, or which NIS 154 million was set aside to encourage early retirement.
The bank says that from early 2000 to March 2001, 350 workers retired, of whom 255 opted for early retirement.
The only point of light in Discount's financial statement was profits netted by subsidiaries.
netted $51.2 million for the year 2000. It for one achieved a positive yield on capital, of 12.7%. Discount's mortgages subsidiary provided another NIS 59 million and Discount's holding in the First International Bank didn't hurt, as FIBI netted NIS 314 million for 2000.
David Granot, who served as Discount's CEO during 2000, earned NIS 2.77 million. In late 2000 Granot left Discount for FIBI. Discount chairman Arie Mientkavich took home NIS 1.75 million for the year.