9 August 12 11:57–Deutsche Bank says that while the fundamentals of Israeli banks are closer to those of banks in the US and developed Asian countries, their valuations are closer to European banks. Analyst Dan Harverd says, Israeli bank shares have been amongst the weakest globally over the past 12 months, comparable in performance only to banks with exposure to troubled sovereign credit risk, weak funding and recapitalization needs.”
Harverd adds, “Stock performance has been most closely correlated to European banks (with the emerging market link finally breaking down), though amazingly the Israeli banks have underperformed European peers, especially over the past three months. We view this as curious given lower macro pressures and more stable balance sheets, and see this as the right time to take an overweight sector stance.”
Harverd gives “Buy” recommendations for Bank Hapoalim (TASE: POLI), Israel Discount Bank (TASE: DSCT), and Mizrahi Tefahot Bank (TASE:MZTF), and “Hold” recommendation for Bank Leumi (TASE: LUMI).
Harverd says that the current valuation levels of Israeli banks have only been seen twice over the past decade, at the height of the global financial crisis and during the 2002 recession when GDP contracted 0.6%, the government debt-GDP ratio was over 100%, and long-term bond yields were over 10%. “By contrast the current environment appears relatively benign, with the main concern credit quality as the economy slows and the corporate bond market remains problematic. The next few quarters should see a typical credit cycle, but we do not expect pressure on equity levels.”…Read More>>