Haaretz reports on a troubled Israeli bank — Hapoalim.
It appears to be up for sale.
It wants to sell its mortgages and is willing to take a $1 billion loss.
The Jews may have invented banking but they are not immune from its struggles.
Bank Hapoalim is negotiating to sell a large share of its mortgage-backed securities portfolio – and take a $1 billion loss on its investment.
Rumors of the sale began spreading last Wednesday, sending the share down 4.8% on twice the bank’s normal trading volume. All Bank Hapoalim would say is "The bank does not comment on rumors."
The mortgage-backed securities under discussion, Alt-A and Alt-B, are based on mortgage loans to credit-worthy homebuyers. Other loans may have a relatively high ratio of mortgage to home value.
Alt-B loans are similar to Alt-A only, worse.
The Supervisor of Banks, Rony Hizkiyahu, responded to Hapoalim’s investments in such risky securities by demanding that the bank recalculate its capital adequacy ratios – the ratio between equity and risky assets.
Hizkiyahu required the bank to double the capital requirement to cover such assets. This forces the bank to hold more capital in reserve against such assets, which restricts the use of such capital.
It limits the amount of credit the bank can give and reduces the leverage available to the bank.
Bank Hapoalim reported that as a result of the changes in its capital allocation due to the new requirements, its capital adequacy ratio dropped 0.35%.
So far the bank has written down $333 million as a permanent loss of value on its asset-backed portfolio; $43 million was written off as losses on its profit and loss statement.