Board of Directors as at 31 December 2004 Bank Leumi (UK) plc

Transcription

Bank Leumi (UK) plc and subsidiaries
Board of Directors as at 31 December 2004
Eitan Raff – Chairman
Sir Bernard Schreier – Deputy Chairman **#~#
Baruch Lederman – Managing Director & Chief Executive Officer **~
John Daly **~
Jeffrey M. Greenwood *#
Robert Glatter *~
David R. Meller **
Walter K. Goldsmith *~
Siegfried R. Ramseyer *~
Baroness Susan A. Greenfield **
Eric H. Senat **
Dr Ehud Shapira
Company Secretary
Naomi Hillel
* Members of the Audit & Remuneration Committee
~ Members of the Credit Committee
** Members of the Executive Committee
# Committee Chairman
Bank Leumi (UK) plc
Executive Management
Baruch Lederman
Managing Director & Chief Executive Officer
Collin E. Cumberland
Deputy General Manager
Head of Commercial & Corporate Banking
Lesley J. Secretan
Deputy General Manager
Head of Finance & Operations
Internal Audit, Compliance & Risk Management
Gordon Cripps
Head of Internal Audit
Simon Rothberg
Risk Control Manager & Compliance Oversight
David Magee
Money Laundering Reporting Officer
Auditors: KPMG Audit Plc, One Canada Square, London E14 5AG
Registered Office
20 Stratford Place
London W1C 1BG
Telephone 020 7907 8000
Facsimile 020 7907 8001
Bank Leumi (UK) plc registered in England. Registration No. 640370. Authorised & Regulated by The Financial Services Authority.
1
Chairman’s Statement
I am pleased to present the report for 2004 and to say that the Bank Leumi (UK) Group’s
financial statements reflect a satisfactory performance for the year.
We continue with our policy of “Relationship Banking”. Our aim is to provide all of our
customers with the highest quality service and this policy continues to drive our
achievements in the marketplace.
In line with the strategic decision of the Bank Leumi Group to grow by acquisition, I am
pleased to say that during the latter part of 2004, after much effort made by the
management, an agreement was completed under which Bank Leumi (UK) plc acquired
Riggs Bank & Trust Company (Channel Islands) Limited, now called Leumi Bank & Trust
Company (Channel Islands) Limited. The Bank also acquired certain customer business of
the London operations of Riggs Bank N.A.
Balance Sheet
Customer growth in lending reflected an increase of 10% when compared to 2003. Lending
to customers stood at £568 million compared to £516 million for the previous year.
Eitan Raff
Chairman
Customer deposits greatly increased by 22% to £774 million compared to £636 million for 2003, an increase of £138 million. The increase
in real terms is higher at approximately £158 million due to our diversified deposit base being affected by the strengthening of the pound
against the US dollar causing a decline in the customer deposits by approximately £20 million.
Our offshore subsidiary Bank Leumi (Jersey) Limited progressed during the year with increased deposits, its subsidiary Leumi Overseas Trust
Corporation Limited also saw growth in business. The operations of Leumi Bank & Trust Company (Channel Islands) Limited will be
amalgamated with these existing companies and will enhance the range of offshore and trust services giving a platform for further growth.
Our Northern Office in Manchester progressed during 2004 contributing towards both the increase in lending to customers and the
increase in customer deposits.
During 2004 the level of debt securities increased and the inter-bank business reduced.
Both of these items are primarily used for matching interest rate risk and liquidity purposes.
Profitability
The 2004 group profit on ordinary activities after taxation amounted to £9.2 million
compared to £10.7 million for the previous year. The 2003 results include an exceptional
item from the sale of shares representing 19.5% of Shore Capital plc. Excluding this gain
the net group profit for 2003 would have amounted to £7.2million and therefore the net
group profit for 2004 of £9.2 million reflects an increase of 28%.
This represents a post-tax return on capital
employed (excluding exceptional items) of
9.2% compared to 8.2% in 2003.
Sir Bernard Schreier
Deputy Chairman
The group profit on ordinary activities before
exceptional items and taxation amounted to
£13.3 million compared to £10.4 million for
2003, an increase of 28%.
This represents a pre-tax return on capital employed (excluding exceptional items) of
13.1% compared to 11.7% in 2003.
Operating profit before provisions increased by 30% to £15.9 million.
Total operating income reflected an increase of 11% to £27.6 million for 2004 compared to
£24.8 million.
Non-interest income grew by 17% to £12.4 million compared to £10.6 million for 2003.
Non-interest income saw growth in all areas, mainly from profit participation income,
lending fees and foreign exchange income.
Net interest income increased by 8% compared to 2003 to £15.2 million, mainly due to
increased volume in customer business
We continue to carefully control all areas of expenditure. Total administrative expenses
have reduced resulting in a level of £11 million compared to £11.8 million for 2003.
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Baruch Lederman
Managing Director &
Chief Executive Officer
Chairman’s Statement continued
The Bank is conservative and has vigilant credit risk systems. The total bad and doubtful debt provision consists of specific and general
provisions. The specific provision P & L charge for 2004 was increased to £2.6 million amounting to 0.46% of loans and advances to
customers as at 31.12.2004 compared to £1.9 million for the previous year, 0.36% of loans and advances to customers as at 31.12.2003.
It was considered prudent to retain the overall general provision at a level of £2.7 million.
Corporate Governance
Both the Board of Directors together with
Management continue to promote and maintain a
sound system of Corporate Governance in
compliance with applicable regulatory requirements
and annual reviews are conducted in all relevant
areas.
UK Economy
UK GDP growth eased somewhat to 0.7% in the
first quarter of 2004 from 1% in the fourth quarter
of 2003, but output growth then picked up to 0.9%
in the second quarter only to fall to 0.5% in the third
quarter of 2004. The year-on-year GDP growth rate
was 3.1% in the third quarter of 2004, significantly
above the trend, but down from the 3.5% seen in
the second quarter of the year.
Galia Maor - President & CEO, Bank Leumi le-Israel B.M.; Dr. Ehud Shapira – Director,
Senior Deputy CEO, Head of Corporate and International Banking, Bank Leumi
le-Israel B.M. and Baruch Lederman – Managing Director & CEO, Bank Leumi (UK) plc
The Government’s current target measure of inflation (CPI) rose from 1.1% in March 2004 to 1.6% in June as higher oil prices pushed up
transport costs, before falling to 1.1% in September, but rising once again in December 2004 to 1.6%, well below the MPC target rate of
2%. The Government’s old target measure of inflation (RPIX, which excludes mortgage interest payments), for September stood at 1.9%,
but increased to 2.5% in December which is in-line with the Government’s old target level.
UK interest rates started the year at 3.75%, but by August 2004 rates had increased to 4.75% above the trend of GDP growth in the UK.
Earlier strong increases in household borrowing and house prices were the main reasons cited for the increases, but the MPC have voted
since to keep interest rates on hold following signs that consumer spending and house prices are cooling.
Equity markets continued to show positive growth during 2004, the FTSE all share starting the year at 4477 growing by just over 7.5% to
4814 at the year end.
Capital
As the Bank is well capitalised for the level of business undertaken, the Directors are pleased to recommend the payment of a dividend
totalling £4.5 million or approx 50% of the 2004 post-tax profit. The dividend amounts to 46 pence per share.
Directors, Management and Staff
I would like to welcome Mr. Baruch Lederman who took up the post of Managing Director & CEO of Bank Leumi (UK) plc midway through
2004. He has worked for the Bank Leumi Group for the past 21 years. He was the Head of the Commercial Banking Division in Israel. We
welcome his knowledge and experience to the UK Group.
I welcome the newly appointed Directors, Mrs. L. J. Secretan and Mr. C. E. Cumberland. They are both part of the Executive Management
of the Bank and have extensive knowledge of the Bank.
Mid 2004 saw Mr. Uzi Rosen, Managing Director & CEO leaving Bank Leumi (UK) plc in order to take up a new post in the Bank Leumi
Group. He is now the President & CEO of Bank Leumi USA. I would like to thank him for his past contribution to the growth of Bank Leumi
(UK) plc.
At the end of September 2004 Mr. Maurice Shear, Deputy General Manager and part of the Executive Management of the Bank retired
after many years service. I would like to thank him for his contribution mainly to the Private Banking and Treasury areas of the Bank.
I would like to thank Sir Bernard Schreier, Deputy Chairman and all my fellow Directors for their co-operation and contribution during 2004.
I would like to extend their thanks, together with my own, to the Management and Staff for their efforts and achievements over the past
year.
Eitan Raff
Chairman of the Board of Directors
3
Relationship Banking ‘where the customer comes first’
At Bank Leumi the customer’s needs come first.
We work to establish a genuine partnership.
For trade with Israel: your ideal partner
Given the attractive appeal of Israel as a trading partner, our multilingual Israeli Business Unit is ideally suited to handle
any business connected with that country. Our domestic expertise, combined with the fact that we are a member of the
Bank Leumi Group (the longest established bank in Israel), enables us to offer a service which combines a close
understanding of the business cultures in both countries.
Trade Finance
Our Trade Finance team is renowned for its specialised knowledge and efficient service. The experienced staff have
established our reputation as one of the best global trade finance units in London. Our services include letters of credit,
trade bill discounting, trade debtor finance, financing of credit insured transactions and the provision of bank
guarantees.
Property Finance
We specialise in all aspects of property business including investment, development and dealing in commercial and
residential properties, for both UK and off-shore borrowers, with a preference for shorter term financing with the
flexibility to meet individual requirements.
Commercial Finance
The Bank has an experienced team of account managers dedicated to providing a first class service to a wide range of
commercial and corporate borrowers. As a result of our expertise and flexibility we are also able to meet the demands
of the professional and financial sectors.
Media Finance
The approach of our Media financing unit is distinctive. It combines a deep understanding of the Television and Film
production industry with the expertise necessary to tailor specific financing packages for customers operating in the
sector. The unit has become a leading provider of tax based film production finance and they are widely considered
experts in this area.
Private Banking
Our Private Banking Managers offer an advisory service for both the expert and the less sophisticated investment client
whether personal or corporate. The client’s financial needs, objectives and attitude to risk are carefully assessed and it is only
when these are fully understood that a particular strategy is recommended. The client’s dedicated Manager will then regularly
review the client’s needs and requirements taking into account any changes and tailoring the investment strategy to ensure
that their objectives continue to be successfully met.
Private Banking provides an extensive choice of deposit and investment accounts together with foreign exchange and
securities trading facilities and derivative instruments for hedging purposes. Working closely with our Treasury Department,
we are also able to offer appropriately structured products to our worldwide investors, both large and small.
In order to ensure that long-term investment strategies can remain in place, Private Banking is able to provide lending facilities
secured against such investments to cover a variety of purposes including providing funds for unforeseen circumstances.
4
Relationship Banking continued
Treasury, Foreign Exchange & Money Markets
Our Dealing Room offers advice on foreign exchange, money market and derivative products and close liaison with our
Account Managers allows us to evaluate the possible foreign exchange and interest rate risks inherent in a particular business.
We can recommend protective action through basic spot and forward foreign exchange deals, foreign currency options, swaps
and specially tailored transactions designed to offer guard against changes in both interest and currency exchange rates.
Offshore Services
Our wholly owned subsidiary, Bank Leumi (Jersey) Limited offers a specialist range of offshore banking services to
both personal and corporate clients.
As well as fixed term deposit accounts in all major currencies and attractive interest rates, Bank Leumi (Jersey) provides
highly competitive dealing rates in foreign exchange and securities. We also provide credit facilities where suitable
collateral is available.
The Bank’s services in Jersey are further complemented by Leumi Overseas Trust Corporation Limited, which offers
a comprehensive range of trust and international company services established and administered in a wide number of
recognised jurisdictions.
As of mid-February 2005 Bank Leumi purchased Riggs Bank & Trust Company (Channel Islands) Limited. The company
immediately changed its name to Leumi Bank & Trust Company (Channel Islands) Limited. This purchase enables
the Bank to provide additional offshore services mainly in the form of discretionary and advisory investment management
services.
5
Report of the Directors
The Directors present their Report and the Accounts of Bank
Leumi (UK) plc for the year ended 31 December 2004.
Activities
The Bank and its subsidiary undertakings are engaged in the
business of banking and related financial services. A review
of the business is given in the Chairman's Statement on
pages 2-3.
Results and Dividend
The results for the year are set out on page 7.
The Board of Directors is pleased to recommend the payment
of a dividend totalling £4.5 million or 50% of post-tax profit
equating to 46 pence per share (2003: 107 pence) to be paid on
26 April 2005.
Board of Directors
The present Directors are listed on page 1.
The Directors retiring in rotation in accordance with the
Company’s Articles are Mr. J. M. Greenwood, Mr. E. Raff and
Dr. E. Shapira.
Mr. E. Raff and Dr. E. Shapira, both of whom are eligible, offer
themselves for re-election.
Mr. B. Lederman who was appointed in June 2004 retires in
accordance with the Company’s Articles and is offering himself
for re-election.
Mrs. L. J. Secretan and Mr. C. E. Cumberland who were
appointed in February 2005 retire in accordance with the
Company’s Articles and are offering themselves for re-election.
Mr. U. Rosen retired from the Board in June 2004.
There are no directors’ service contracts in existence for the
Directors proposed for re-election.
During the year the Bank provided cover for its directors and
officers under directors’ and officers’ liability insurance policies.
Directors’ Interests
No Directors held shares in the Bank during the year.
Statement of Directors’ Responsibilities
Company Law requires the Directors to prepare, for each
financial year, financial statements which give a true and fair
view of the state of affairs of the Bank and the Group and of the
profit or loss of the Group for that period. In preparing those
financial statements the Directors are required to:
– select suitable accounting policies and then apply them
consistently;
– make judgements and estimates that are reasonable and
prudent;
– state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
– prepare the financial statements on a going-concern basis,
unless it is inappropriate to presume that the Bank and the
Group will continue in business.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time
the financial position of the Bank and the Group and which
enable them to ensure that the financial statements comply
6
with the Companies Act 1985. They are also responsible for
safeguarding the assets of the Bank and the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Creditor Payment Policy
The Bank’s policy is to agree terms of payment with suppliers
and these normally provide for payment within 30 days after
the date of the invoice except where other arrangements have
been negotiated. It is the policy of the Bank to abide by the
agreed terms of payment provided the supplier performs
according to the terms of the contract.
To comply with the provision of paragraph 12(3) of part VI of
schedule 7 to the Companies Act 1985, the figure for trade
creditor days as at 31 December 2004 is 30 (2003: 21).
Share and Loan Capital
As at 31 December 2004 Bank Leumi le-Israel B.M. Group held
99.71% of the issued share capital.
Employees
The average number of persons employed by the Bank
(including contract staff) in each week during the year was 118
(2003: 117) and the aggregate remuneration paid to all such
persons amounted to £5,222,900 (2003: £5,046,640).
Charitable and Political Donations
Charitable donations during the year amounted to £12,185
(2003: £9,503). There were no political donations.
Auditors
KPMG Audit Plc have indicated their willingness to continue in
office and a resolution to reappoint them, and to authorise the
Directors to determine their remuneration will be submitted to
the Annual General Meeting.
Events after the Date of Accounts
On 27 January 2005 the Bank and Riggs National Corporation
signed an agreement under which the Bank acquired Riggs
Bank & Trust Company (Channel Islands) Limited (“Riggs
Channel Islands”), for the consideration of some $25 million.
In addition Bank Leumi UK plc also acquired for consideration
of some $12 million certain private banking activities of the
London operations of Riggs Bank N.A., the parent company of
Riggs Channel Islands.
The acquisition is consistent with the strategy of the Leumi
Group, to significantly expand its international activities.
The operations of Riggs Channel Islands will be amalgamated
with the Bank’s existing activities in Jersey and will expand its
customer deposit, investment and loan portfolios as well as trust
activity. This acquisition will enhance the Bank’s range of offshore
and trust services and provide a platform for further growth.
The purchase had received the approval of the Board of
Directors of both the Bank and Riggs Bank N.A., as well as the
regulatory authorities in Jersey and in Israel. The transaction
was concluded on 11 February 2005.
By Order of the Board
Naomi Hillel, Company Secretary.
21 February 2005
20, Stratford Place, London W1C 1BG.
Consolidated Profit and Loss Account
for the year ended 31 December 2004
2004
£000’s
2003
£000’s
3,998
32,183
————
36,181
(20,935)
————
15,246
3,987
25,843
————
29,830
(15,648)
————
14,182
Non interest income
8,580
2,693
1,133
————
12,406
8,118
2,346
132
————
10,596
Operating income
27,652
24,778
(11,019)
48
————
(10,971)
(739)
(10,311)
(1,439)
————
(11,750)
(796)
15,942
12,232
(2,619)
(1,858)
13,323
10,374
2
–
13,323
4,842
15,216
Tax on Group profit on ordinary activities
6
(4,173)
–
————
(4,173)
(3,206)
(1,339)
————
(4,545)
Group profit on ordinary activities after taxation
7
9,150
10,671
(4,546)
————
(10,575)
————
Notes
Interest receivable on debt securities
Other interest receivable
Total interest receivable
Less: interest payable
Net interest income
Fees and commission receivable
Dealing profits
Other operating income
28
Administrative expenses
Exceptional administrative expenses
Total administrative expenses
Depreciation and amortisation
3
16
Operating profit before provisions
Total provisions for bad and doubtful debts
12
Operating profit on ordinary activities before
exceptional items and taxation
Exceptional items – Disposals of investment securities
Operating profit on ordinary activities before taxation
Tax on Group profit on ordinary activities before exceptional items
Tax on exceptional items
Proposed dividend
Retained profit for the year
23
4,604
96
————
————
All items dealt with in arriving at operating profit for 2004 and 2003 relate to continuing operations.
The only recognised gains and losses for the period relate to the profit for the financial year. A note of historical cost profits and
losses has not been provided on the grounds that the Directors do not consider that there is a difference between historical cost
profits and those disclosed in the profit and loss account.
The notes on pages 10 to 31 form an integral part of the accounts.
7
Balance Sheet as at 31 December 2004
Group
Notes
Bank
2004
£000’s
2003
£000’s
2004
£000’s
2003
£000’s
2
6
2
6
Assets
Cash and balances at central banks
Loans and advances to banks
10
179,954
181,243
179,268
180,834
Loans and advances to customers
11
567,909
515,997
567,909
515,997
Debt securities
13
190,341
148,059
185,500
144,030
Equity shares
14
–
2
–
2
Shares in group undertakings
15
–
–
2,510
2,510
Tangible fixed assets
16
3,002
3,453
3,002
3,453
Other assets
17
3,591
5,568
3,347
5,401
2,231
————
947,030
————
1,972
————
856,300
————
2,231
————
943,769
————
1,972
————
854,205
————
Prepayments and accrued income
Total assets
9
Liabilities
Deposits by banks
18
48,530
91,682
48,332
91,520
Customer deposits
19
774,000
636,136
773,448
636,462
Other liabilities
20
11,983
20,153
11,740
19,869
1,723
1,958
1,723
1,958
Accruals and deferred income
Provision for commitment and charges
20
219
400
219
400
Subordinated liabilities
21
4,829
————
841,284
————
4,829
————
755,158
————
4,829
————
840,291
————
4,829
————
755,038
————
22
9,884
9,884
9,884
9,884
Share premium account
18,176
18,176
18,176
18,176
Profit and loss account
77,686
73,082
75,418
71,107
95,862
————
91,258
————
93,594
————
89,283
————
105,746
————
947,030
————
101,142
————
856,300
————
103,478
————
943,769
————
99,167
————
854,205
————
Shareholders’ Funds
Called up share capital
Total Reserves
8
Equity shareholders’ funds
23
Total liabilities and shareholders’ funds
9
Balance Sheet as at 31 December 2004 continued
Memorandum Items
Group
Bank
2004
£000’s
2003
£000’s
2004
£000’s
2003
£000’s
5,185
29,768
24,516
————
59,469
————
4,805
38,519
27,009
————
70,333
————
5,185
29,768
24,516
————
59,469
————
4,805
38,519
27,009
————
70,333
————
219,518
247,631
219,518
247,631
Notes
Contingent liabilities
Acceptances and endorsements
Guarantees
Other contingent liabilities
24
Commitments
Lending commitments
24
E. Raff, Chairman.
J.M. Greenwood, Director and Chairman of the Audit Committee.
B. Lederman, Managing Director and Chief Executive Officer.
21 February 2005
The notes on pages 10 to 31 form an integral part of the accounts.
9
Notes to the Accounts
1. Accounting Policies
a. Basis of Accounts
The accounts have been prepared under the historical cost
convention and in accordance with the special provisions of
Part VII of the Companies Act 1985 applicable to banking
groups. The accounts have been prepared in accordance with
applicable accounting standards of the Accounting Standards
Board (ASB), pronouncements of the Urgent Issues Task Force
(UITF) and with the Statements of Recommended Accounting
Practice (SORP) issued by the British Bankers Association.
b. Basis of Consolidation
The consolidated accounts include the assets, liabilities and
results, of all subsidiary undertakings, up to 31 December 2004.
c. Foreign Currency Translation
Assets and liabilities in foreign currencies are expressed at the
rates of exchange ruling at the close of business on the balance
sheet date and any difference is taken to the profit and loss
account.
d. General Provisions
Specific provisions are made against loans and advances
when, in the opinion of the Directors, credit risks or political
factors make recovery doubtful. The level of provision for each
loan identified as impaired is based on an estimate of the likely
future recoverable amount, taking into account the level of
security held, reliability of information and other relevant
factors.
General provisions augment specific provisions and provide
cover for loans which are impaired at the balance sheet date
but which will not be identified as such until some time in the
future. Bank Leumi maintains a general provision which is
determined taking into account the structure and risk
characteristics of the loan portfolio.
Historical levels of latent risk are regularly reviewed to
determine that the level of general provisioning continues to be
appropriate. General provisions are deducted from loans and
advances to customers in the balance sheet.
Provided that there is a realistic prospect of interest being paid
at some future date, interest on non-performing loans is
charged to the customer’s account. However, the interest is not
credited to the profit and loss account but to an interest
suspense account in the balance sheet which is netted against
the relevant loan. On receipt of cash (other than from the
realisation of security), suspended interest is recovered and
10
taken to the profit and loss account. Amounts received from the
realisation of security are applied to the repayment of
outstanding indebtedness, with any surplus used to recover
any specific provisions and then suspended interest.
e. Debt Securities and Equity Shares
Shares and securities intended for use on a continuing basis in
the Group’s activities are classified as investment securities.
Such shares and securities are stated at cost less provision for
any permanent diminution in value. The cost of investment
securities is adjusted for the amortisation of premiums and
discounts on a straight line basis. The amortisation of
premiums and discounts is included in interest income.
Securities held for trading purposes are valued at their bid
market value at the balance sheet date.
Securities maintained for the purpose of hedging are carried at
a value which reflects the accounting treatment of the items
hedged.
f. Fixed Assets
Fixed assets are stated in the balance sheet at cost, less
amounts written off. Depreciation is provided on a straight-line
basis over the estimated useful lives of the assets as follows:
Short leasehold buildings
Computers
Fixtures, fittings and furnishings
unexpired period
3-6 years
5 years
g. Operating Leases
Rentals payable and receivable under operating leases are
accounted for on the straight-line basis over the periods of the
leases and are included in Administrative expenses. The empty
property provision relates to discounted future costs
associated with vacant and sub-let short leasehold properties.
h. Pensions
The pension cost, relating to the provision of employee
pensions, is assessed in accordance with the advice of
qualified actuaries so as to recognise the cost of pensions on a
systematic basis over employees’ service lives.
i. Taxation
The charge for taxation is based on the profit for the year,
amended for permanent differences between the treatment of
certain items for tax and accounting purposes.
Deferred tax is fully provided (in accordance with FRS 19) on
timing differences using tax rates which are expected to apply
on crystallisation of the timing differences.
Deferred tax assets are recognised to the extent they are more
likely than not to be recovered.
Notes to the Accounts continued
j. Income Recognition
l. Cashflow
Interest income is recognised in the profit and loss account as
it accrues, except in the case of doubtful debts (Note1 (d)).
Under FRS1 the Bank is exempt from the requirement to
prepare a cash flow statement on the grounds that a parent
undertaking includes the Bank in its own published
consolidated financial statements.
Fee and commission income is accounted for in the period
when receivable, except where it is charged to cover the costs
of a continuing service to, or risk borne for, the customer, or is
interest in nature. In these cases, it is recognised on an
appropriate basis over the relevant period.
2. Group Profit on Ordinary Activities
before Tax
k. Derivatives
Transactions are undertaken in derivative financial
instruments, “derivatives” which include forward foreign
exchange contracts, interest rate swaps, cross-currency
swaps, foreign exchange options and similar instruments, for
trading and non-trading purposes.
Derivatives sold to customers are classified as trading. In order
to reduce the risk of these instruments, the Bank’s policy is
to cover all open positions by purchasing matching derivatives
in the market. The positive fair values of the purchased
derivatives represent a counterparty risk which is monitored
regularly and added to the counterparty total exposure. Gains
and losses are taken directly to the profit and loss account
and reported within “Dealing Profits”.
Derivatives classified as non-trading are those entered into for
the purpose of matching or eliminating risk from potential
movements in foreign exchange rates, interest rates, and
equity prices inherent in the Group’s non-trading assets,
liabilities and positions. Non-trading assets, liabilities and
positions are those intended for use on a continuing basis.
A derivative is designated as non-trading where there is an
offset between the effects of potential movements in market
rates on the derivative and designated non-trading asset,
liability or position being hedged.
Non-trading derivatives are reviewed regularly for their
effectiveness as hedges and are accounted for on an accruals
basis, consistent with the assets, liabilities, or positions being
hedged. Income and expense on non-trading derivatives are
recognised as they accrue over the life of the instruments as an
adjustment to “Interest receivable” or “Interest payable”.
Where a non-trading derivative no longer represents a hedge
because either the underlying non-trading asset, liability or
position has been derecognised, or transferred into a trading
portfolio, or the effectiveness of the hedge has been
undermined, it is restated at fair value and any change in value
is taken directly to the profit and loss account and reported
within “Other operating income”.
Thereafter the derivative is classified as trading or
redesignated as a hedge of a non-trading item and accounted
for accordingly.
2004
£000’s
2003
£000’s
3,917
3,850
96
4,842
258
6
739
218
10
796
738
611
Group Profit on ordinary activities
before tax is stated after:
(i) Crediting:
Income from listed investments
Profits less losses on disposal of
investment securities
(ii) Charging:
Charges incurred with respect to
subordinated liabilities
Hire of computers and equipment
Depreciation
Rentals paid on premises under
operating leases, net of rental
income of £53,000 (2003: £185,000)
The auditors’ remuneration was £159,500 (2003: £141,392)
of which £135,000 (2003: £114,500) related to the bank.
The auditors’ remuneration for non-audit work for Bank Leumi
(UK) plc and its UK subsidiary undertakings was £16,150
(2003: £118,500).
3. Administrative Expenses
Staff Costs
• wages and salaries
• social security costs
• pension costs
• other administrative expenses
Exceptional pension costs
Empty premises provision
Acquisition Expenses
2004
£000’s
2003
£000’s
5,484
627
483
4,425
———
11,019
5,047
539
405
4,320
———
10,311
–
(181)
133
———
(48)
———
514
400
525
———
1,439
———
11
4. Directors’ Emoluments and Loans
The aggregate emoluments of the Directors of the Bank were:
2004
£
2003
£
Aggregate emoluments
Of which:
Sums paid to Bank Leumi le-Israel B.M. in respect of Directors’ fees
647,381
560,851
15,450
16,550
The highest paid Director
227,972
328,697
The highest paid Director received the above sum in salary and benefits such as expatriate accommodation in the UK and social
expenses in the UK and Israel plus tax on these benefits. The Bank paid pension contributions of £4,056 in respect of the highest paid
Director (2003: £5,878). No pension contributions were paid by the Bank in respect of other Directors (2003: £Nil).
The aggregate amount of loans to Directors outstanding as at 31 December 2004 amounted to £6,938 relating to 1 director
(2003: £6,135 – 1 director).
None of the Directors had a material interest, directly, or indirectly, at any time during the year in any other significant contract,
transaction or arrangement with the bank or its subsidiary undertakings.
5. Employees
The average number of persons employed by the Group during the year was made up as follows:
Managers
Clerical Staff
Others
2004
2003
25
91
2
———
118
———
24
91
2
———
117
———
2004
£000’s
2003
£000’s
3,792
73
60
———
3,925
———
4,604
63
–
———
4,667
———
248
———
248
———
4,173
(122)
———
(122)
———
4,545
2004
£000’s
2003
£000’s
13,323
3,997
15,216
4,565
(37)
44
–
(150)
11
60
———
3,925
———
(28)
30
(113)
(90)
303
–
———
4,667
———
6. Tax on Group Profit on Ordinary Activities
(a) Analysis of charge in period
UK Corporation tax on profits of the period
Foreign Tax
Prior Year Tax
Total current tax
Deferred Tax
Timing differences
Total deferred tax (note 17)
Tax on profit on ordinary activities
(b) Factors affecting tax charge period
The tax assessed for the period is lower than the standard rate of Corporation tax (30%).
The differences are explained below:
Profit on ordinary activities before tax
Corporation Tax (30%)
Effects of:
Foreign Tax
Capital allowances in excess of depreciation
Sale of Shore Capital
Pension provision
Expenses not deductible for tax
Prior Year Tax
Current Tax charge for period
12
6. Tax on Group Profit on Ordinary Activities – continued
(c) Factors that may affect future tax charges
The Group expects to claim Capital Allowances below depreciation charge, which will increase the tax charge.
No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. As the earnings are re-invested overseas no tax
is expected to be payable on them in the foreseeable future.
7. Group Profit dealt with in the Accounts of Bank Leumi (UK) plc
As permitted by Section 230 of the Companies Act 1985 the profit and loss account for Bank Leumi (UK) plc has not been presented
separately and the profit dealt with in the financial statements is £8,857,000 compared to £10,500,000 in 2003, a decrease of 15.6%.
Excluding the exceptional gain from the sale of Shore Capital shares in 2003 the profit dealt with in the financial statements for Bank
Leumi (UK) plc reflects an increase of 27%.
8. Related Party Transactions
In the normal course of the Bank’s business, transactions are undertaken with its parent and sister companies which are regarded as
related parties.
A list of parent and sister companies is shown on the last page of this report under the heading ‘The Bank Leumi le-Israel Group
International Addresses’.
The transactions with these companies are undertaken on an arm's length basis and are mainly short term treasury loans and deposits
within the Bank Leumi Group. Bank Leumi (UK) plc acts as the sterling Treasurer for certain European subsidiaries of Bank Leumi
le-Israel B.M.
The total of such related party transactions included in the balance sheet under the following headings are:
Assets
Loans and advances to banks
Debt securities
Liabilities
Deposits by banks
Deposits by customers
Memorandum items
Other contingent liabilities
2004
£000’s
2003
£000’s
2,870
2,122
4,313
6,342
23,870
9,868
42,939
6,268
7,539
5,349
417
–
In respect of foreign exchange, interest rate and equity related contracts,
group company related party transactions are as follows:
Forward foreign exchange contracts
9. Currency Analysis of Assets and Liabilities
Assets
Denominated in sterling
Denominated in currencies other than sterling
Total Assets
Liabilities
Denominated in sterling
Denominated in currencies other than sterling
Total Liabilities
2004
£000’s
Group
Bank
2003
£000’s
2004
£000’s
506,254
440,776
————
947,030
————
483,659
372,641
————
856,300
————
503,232
440,537
————
943,769
————
481,564
372,641
————
854,205
————
558,018
389,012
————
947,030
————
489,788
366,512
————
856,300
————
554,996
388,773
————
943,769
————
487,693
366,512
————
854,205
————
2003
£000’s
13
10. Loans and Advances to Banks
2004
£000’s
Repayable on demand
Remaining maturity of other loans and advances
• 5 years or less but over 1 year
• 1 year or less but over 3 months
• 3 months or less
Group
Bank
2003
£000’s
2004
£000’s
3,509
3,855
2,823
3,446
–
2,338
174,107
————
179,954
————
–
2,419
174,969
————
181,243
————
–
2,338
174,107
————
179,268
————
–
2,419
174,969
————
180,834
————
2003
£000’s
11. Loans and Advances to Customers
Analysed by remaining maturity:
•
•
•
•
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less excluding repayable on demand
repayable on demand
General and specific bad and doubtful debt provisions
Analysed by industrial sector
(net of specific bad debt provision):
Property
Commerce
Industry
Other services
Hotels
Other
Less general provision
2004
£000’s
Group
Bank
2003
£000’s
2004
£000’s
17,106
78,702
351,065
126,241
9,026
64,566
330,341
119,506
17,106
78,702
351,065
126,241
9,026
64,566
330,341
119,506
(5,205)
————
567,909
————
(7,442)
————
515,997
————
(5,205)
————
567,909
————
(7,442)
————
515,997
————
2004
£000’s
178,017
110,597
30,389
113,945
99,254
38,407
————
570,609
(2,700)
————
567,909
————
Group
2003
£000’s
2004
£000’s
171,128
100,036
33,032
113,664
63,021
37,816
————
518,697
(2,700)
————
515,997
————
178,017
110,597
30,389
113,945
99,254
38,407
————
570,609
(2,700)
————
567,909
————
Bank
2003
£000’s
2003
£000’s
171,128
100,036
33,032
113,664
63,021
37,816
————
518,697
(2,700)
————
515,997
————
Of the total amount outstanding to the largest industrial sector, property, £30.3 million (2003: £27.7 million) was covered by cash or
bank guarantees.
14
12. Provisions for Bad and Doubtful Debts
Group and Bank
At 1 January
Charge against profits
(net of recoveries)
Recoveries
Amount written off
FX Difference
At 31 December
Specific
£000’s
2004
General
£000’s
Total
£000’s
Specific
£000’s
2003
General
£000’s
Total
£000’s
4,742
2,700
7,442
4,559
2,700
7,259
2,619
110
–
–
2,619
110
1,858
214
–
–
1,858
214
(4,781)
(185)
————
2,505
————
–
–
————
2,700
————
(4,781)
(185)
————
5,205
————
(1,703)
(186)
————
4,742
————
–
–
————
2,700
————
(1,703)
(186)
————
7,442
————
The provisions for bad and doubtful debts detailed above all relate to loans and advances to customers.
As at 31 December 2004 no loans had interest suspended (31 December 2003: £Nil).
13. Debt Securities
Trading Securities
Issued by:
• Government
• Banks & Building Societies
• Other
• Total trading securities
Investment securities
Issued by:
• Government
• Banks & Building Societies
• Other
Total investment securities
Total debt securities
Debt securities
Due within one year
Due one year and over
Total debt securities
Group
2004
2003
Balance Market Balance Market
Sheet Value
Sheet
Value
£000’s £000’s £000’s £000’s
Bank
2004
2003
Balance Market Balance Market
Sheet Value
Sheet
Value
£000’s £000’s £000’s £000’s
6,249
6,249
–
–
4,381
4,381
6,342
6,342
17,137 17,137
–
–
——— ——— ——— ———
27,767 27,767
6,342
6,342
6,249
6,249
–
–
4,381
4,381
6,342
6,342
17,137 17,137
–
–
——— ——— ——— ———
27,767 27,767
6,342
6,342
7,071
135,265
20,238
———
162,574
———
190,341
———
7,080
135,248
20,223
———
162,551
———
190,318
———
7,067
117,371
17,468
———
141,906
———
148,248
———
7,071
130,425
20,237
———
157,733
———
185,500
———
7,080
130,406
20,223
———
157,709
———
185,476
———
117,570
72,771
———
190,341
———
117,544 58,305 58,354
72,774 89,754 89,894
——— ——— ———
190,318 148,059 148,248
——— ——— ———
117,570
67,930
———
185,500
———
117,544 54,276 54,325
67,932 89,754 89,894
——— ——— ———
185,476 144,030 144,219
——— ——— ———
7,057
117,228
17,432
———
141,717
———
148,059
———
7,057
113,199
17,432
———
137,688
———
144,030
———
7,067
113,342
17,468
———
137,877
———
144,219
———
All debt securities are listed on recognised exchanges.
15
13. Debt Securities – continued
Investment Securities
Group:
As at 1 January 2004:
Cost
Premium
Subtotal
Exchange adjustments
Acquisitions:
Redemptions and Disposals:
Cost/Premium
Cost/Premium
Total
Of which at 31 December 2004: Cost
Premium
Total
Investment Securities
Bank:
As at 1 January 2004:
Cost
Premium
Subtotal
Exchange adjustments
Acquisitions:
Redemptions and Disposals:
Cost/Premium
Cost/Premium
Total
Of which at 31 December 2004: Cost
Premium
Total
Government
£000’s
Banks &
Building
Societies
£000’s
Other
£000’s
Total
£000’s
7,067
(10)
116,933
295
17,416
16
141,416
301
7,057
117,228
17,432
141,717
14
–
–
———
7,071
———
7,079
(8)
———
7,071
———
(638)
82,510
(63,835)
———
135,265
———
135,159
106
———
135,265
———
(444)
8,829
(5,579)
———
20,238
———
20,078
160
———
20,238
———
(1,068)
91,339
(69,414)
———
162,574
———
162,316
258
———
162,574
———
7,067
(10)
112,904
295
17,416
16
137,387
301
7,057
113,199
17,432
137,688
14
–
–
———
7,071
———
7,079
(8)
———
7,071
———
(638)
77,671
(59,807)
———
130,425
———
130,321
104
———
130,425
———
(444)
8,829
(5,580)
———
20,237
———
20,077
160
———
20,237
———
(1,068)
86,500
(65,387)
———
157,733
———
157,477
256
———
157,733
———
14. Equity Shares
2004
£000’s
Trading securities
–
———
–
———
2004
£000’s
Quoted
16
–
———
Group
2003
£000’s
2004
£000’s
2
———
2
———
–
———
–
———
Group
2003
£000’s
2004
£000’s
2
———
–
———
Bank
2003
£000’s
2
———
2
———
Bank
2003
£000’s
2
———
15. Shares in Group Undertakings
The group undertakings below, all operate in Great Britain and are registered in England (unless otherwise shown).
Name
AIB Nominees Ltd.
AIB Trustees Ltd.
Apak Finance & Trading Co. Ltd.
Apak Offshore Ltd. (Resident and registered in Jersey)
Bank Leumi (Jersey) Ltd.
(Resident and registered in Jersey)
Leumi Overseas Trust Corporation Ltd.
(Resident and registered in Jersey)
Activity
Nominee
Trustee for the Retirement Benefit Scheme
Investment ++
Investment +++
Banking Services ++
% Held
100%
100%
100%
100%
100%
Trust and company administration
*
*
++
Bank Leumi (Jersey) Ltd holds 100% of the share capital of Leumi Overseas Trust Corporation Ltd.
Book value of the investment in Apak Finance & Trading Co. Ltd. and Bank Leumi (Jersey) Ltd. are £10,000 and £2,500,000
respectively.
+++ Apak Finance & Trading Co. Ltd. holds 100% of the share capital of Apak Offshore Ltd.
16. Tangible Fixed Assets
Group and Bank:
Cost
At 1 January 2004
Additions
Disposals
At 31 December 2004
Accumulated depreciation and amortisation
At 1 January 2004
Additions
Disposals
Charge for year
At 31 December 2004
Net book value at
31 December 2004
Net book value at
31 December 2003
Leases of
less than
50 years
unexpired
£000’s
Computer
and other
equipment
£000’s
Total
£000’s
1,997
–
–
———
1,997
———
4,787
288
–
———
5,075
———
6,784
288
–
———
7,072
———
394
–
–
100
———
494
———
2,937
–
–
639
———
3,576
———
3,331
–
–
739
———
4,070
———
1,503
———
1,499
———
3,002
———
1,603
———
1,850
———
3,453
———
The above leasehold properties are occupied by the bank for its operations.
17
17. Other Assets
2004
£000’s
Trading Derivatives – Fair Value (note 28)
Assets awaiting settlement
Deferred taxation*
*Deferred Taxation Group and Bank
At 1 January brought forward
Deferred Tax – Capital Allowances
Deferred Tax – General Provision
Deferred Tax – Empty Premises Provision
Deferred Tax Asset brought forward
Credit/(Charge) to profit (note 6)
At 31 December carried forward
Deferred Tax – Capital Allowances
Deferred Tax – General Provision
Deferred Tax – Empty Premises Provision
Deferred Tax – Pension Prepayment
Deferred Tax Asset carried forward
2,610
709
272
————
3,591
————
2004
£000’s
Group
2003
£000’s
2004
£000’s
4,647
401
520
————
5,568
————
2,610
465
272
————
3,347
————
Group
2003
£000’s
2004
£000’s
Bank
2003
£000’s
4,647
234
520
————
5,401
————
Bank
2003
£000’s
(410)
(412)
(364)
(412)
810
810
810
810
120
–
66
–
————————————————————————
520
398
520
398
(248)
122
(248)
122
————————————————————————
(364)
(410)
(364)
(410)
810
810
810
810
66
120
66
120
(240)
–
(240)
–
————————————————————————
272
520
272
520
————————————————————————
18. Deposits by Banks
2004
£000’s
Repayable on demand
With agreed maturity dates or periods of notice,
by remaining maturity:
18
Group
Bank
2003
£000’s
2004
£000’s
12,809
2,445
12,611
2,283
–
2,329
33,392
————
48,530
————
345
6,661
82,231
————
91,682
————
–
2,329
33,392
————
48,332
————
345
6,661
82,231
————
91,520
————
2003
£000’s
19. Customer Deposits
2004
£000’s
Repayable on demand
With agreed maturity dates or periods of notice,
by remaining maturity:
Amounts include:
Due to subsidiary undertakings
Group
Bank
2003
£000’s
2004
£000’s
123,576
107,392
123,175
107,718
9,731
165,371
475,322
————
774,000
————
10,821
96,969
420,954
————
636,136
————
9,731
165,371
475,171
————
773,448
————
10,821
96,969
420,954
————
636,462
————
135,791
————
98,748
————
2003
£000’s
20(a). Other Liabilities
2004
£000’s
Taxation
Trading Derivatives – Fair value (note 28)
Liabilities awaiting settlement
Proposed dividend
2,090
2,610
2,737
4,546
————
11,983
————
Group
2003
£000’s
2004
£000’s
2,611
4,647
2,320
10,575
————
20,153
————
1,957
2,610
2,627
4,546
————
11,740
————
Bank
2003
£000’s
2,471
4,647
2,176
10,575
————
19,869
————
20(b). Provision for Commitment and Charges
2004
£000’s
Empty property provision
21. Subordinated Liabilities – Group and Bank
Loan note 1
Loan note 2
Group
Bank
2003
£000’s
2004
£000’s
219
400
219
400
2004
£000’s
Rate of
Interest
2003
£000’s
Rate of
Interest
3,579
1,250
————
4,829
5.667%
5.542%
————
3,579
1,250
————
4,829
4.905%
4.780%
————
2003
£000’s
The subordinated sterling loan notes, all of which are issued by the Bank to the Parent company are callable upon the interest
payment date next following the expiration of five years and one day after notice of redemption is given by the holder. The rates of
interest are fixed at six monthly intervals.
The rights of the subordinated loan holders are subordinated to the claims of all other creditors of the Bank.
19
22. Share Capital
2004
£000’s
Equity Share Capital
Authorised share capital: Ord. shares of £1
Issued share capital: Ord. shares £1 fully paid
Group
Bank
2003
£000’s
2004
£000’s
20,000
————
20,000
————
20,000
————
20,000
————
9,884
————
9,884
————
9,884
————
9,884
————
Profit
and loss
Account
2003
£000’s
2003
£000’s
23. Reconciliation of Movements in Shareholders’ Funds
Group
At the beginning of the year
Retained profit for the year
At the end of the year
Share
Capital
Profit
and loss
Account
2004
£000’s
Share
Capital
2004
£000’s
Share
Premium
Account
2004
£000’s
2003
£000’s
Share
Premium
Account
2003
£000’s
9,884
–
————
9,884
————
18,176
–
————
18,176
————
73,082
4,604
————
77,686
————
9,884
–
————
9,884
————
18,176
–
————
18,176
————
72,986
96
————
73,082
————
Profit
and loss
Account
2003
£000’s
Total Equity shareholders’ funds as at 31 December 2004 was £105,746,000.
Bank
At the beginning of the year
Retained profit/(loss)
for the year
At the end of the year
Share
Capital
Profit
and loss
Account
2004
£000’s
Share
Capital
2004
£000’s
Share
Premium
Account
2004
£000’s
2003
£000’s
Share
Premium
Account
2003
£000’s
9,884
18,176
71,107
9,884
18,176
71,182
–
————
9,884
————
–
————
18,176
————
4,311
————
75,418
————
–
————
9,884
————
–
————
18,176
————
(75)
————
71,107
————
Total Equity shareholders’ funds as at 31 December 2004 was £103,478,000.
Closing shareholders’ funds for the Bank includes retained profits of £75,418,000. When assessing the amount of distributable profits,
the directors recognise that a pension prepayment of £800,000 will be charged gradually to the profit and loss account in future years.
20
24. Memorandum Items
The table below gives, for the Group and the Bank, the notional principal amounts, credit equivalent amounts and risk weight of
off-balance sheet transactions. The notional principal amounts indicate the volume of business outstanding at the balance sheet date
and do not represent amounts at risk. The credit equivalent and risk weighted amounts have been calculated in accordance with the
Financial Services Authority’s guidelines implementing the EC Solvency Directive.
GROUP CONTINGENT
LIABILITIES
Acceptances
Guarantees
Documentary credits &
short term trade related transactions
COMMITMENTS
Credit Lines and other commitments
to lend
• less than 1 year
2004
2003
Contract
amount
£000’s
Credit
equivalent
amount
£000’s
Risk
weight
%
Risk
weighted
amount
£000’s
Contract
amount
£000’s
Risk
weighted
amount
£000’s
5,185
29,768
4,602
15,143
100%
100%
4,602
15,143
4,805
38,519
4,470
24,418
24,516
23,025
20%
4,605
27,009
4,304
219,518
–
–
–
247,631
–
25. Other Commitments
Capital expenditure contracted for:
By the Group and Bank
2004
£000’s
2003
£000’s
Nil
Nil
Lease commitments
At year end, annual commitments under non-cancellable operating leases were:
2004
£000’s
Operating leases which expire
– within 1 year
– 1 to 5 years
– over 5 years
17
671
102
––––––
790
––––––
Group
2003
£000’s
2004
£000’s
–
17
773
––––––
790
––––––
17
671
102
––––––
790
––––––
Bank
2003
£000’s
–
17
773
–––––
790
–––––
26. Segmental Analysis
In the opinion of the Directors there is only one class of business and this is conducted entirely from the United Kingdom and Channel
Islands.
21
27. Pension
Pension benefits based on final pensionable salaries are available to the members of Bank Leumi (UK) Retirement Benefits Scheme,
which is a defined benefit scheme with assets controlled by a Trustee and held separately from those of the Bank.
With effect from 1 June 2000 the defined benefit scheme was closed to new entrants and a defined contribution section of the
scheme was established for all new employees. The pension cost charged to profits and paid was £85,000 (2003: £43,000) which was
equivalent to 10% of members’ pensionable salaries for the defined contribution section.
With regard to the defined benefit scheme, formal actuarial valuations of the scheme, using the attained age method, are carried out
triennially (or more frequently) by a professionally qualified actuary independent of the Bank, the latest being as at 1 January 2003.
The market value of assets at that date was £15.2 million and was sufficient to cover 86% of the value of the accrued liabilities, which
included all benefits for pensioners and deferred pensioners and the past service benefits of current employee members, allowing for
expected future increases in pensionable salaries. After the valuation date but during 2003, scheme benefits were reduced and
ongoing contributions of the Bank and the members were increased, including an additional special contribution from the Bank of
£1.0 million, with the result that the market value of the assets was sufficient to cover 99% of the value of the revised accrued
liabilities. The Banks ongoing contribution rate was increased from 10.9% to 15.0% during 2003.
The regular cost for the Bank’s defined benefit scheme under SSAP24 was £398,000 (2003: £362,000).
For the purposes of FRS17 a qualified independent actuary updated the results of the valuation to 31 December 2004 using the
Projected Unit Valuation Method to obtain the figures in this disclosure note.
At 31 December At 31 December
2004
2003
£000’s
£000’s
Total market value of assets
Present value of scheme’s liabilities
Deficit in the scheme
Related deferred tax liability @ 30%
Net Pension liability
19,213
(19,853)
———
(640)
17,760
(19,759)
———
(1,999)
192
———
(448)
———
600
———
(1,399)
———
The value of the scheme’s liabilities has been determined by a qualified actuary based on the results of an actuarial valuation as at
31 December 2004, using the following assumptions:
At 31 December At 31 December
2004
2003
Rate of increase in salaries
Rate of increase in pensions payment
Rate of revaluation of pensions in deferment
Discount rate
4.00%
2.50%
2.50%
5.50%
4.00%
2.50%
2.50%
5.50%
The assets of the scheme and the expected rates of return were:
Equities
Bonds
Other (cash)
Total market value of assets
22
Expected
long
term
return
Value at
31 Dec
2004
£000’s
Expected
long
term
return
Value at
31 Dec
2003
£000’s
7.00%
5.50%
5.00%
11,642
7,415
156
————
19,213
————
7.00%
5.50%
5.50%
10,810
6,700
250
————
17,760
————
27. Pension – continued
Amount charged to operating profit
Current service cost
Past service cost
Settlements and curtailments
Total operating charge
Amount charged to other finance income
Expected return on assets
Interest on scheme liabilities
Net return/(charge)
Amount recognised in STRGL
Actual less expected return on assets
Experience gain/(losses) on liabilities
Effect of change in assumptions on liabilities
Actuarial gain/(loss) recognised in STRGL
Movement in deficit during the year
Deficit in scheme at start of year
Current service cost
Cash contribution
Settlements & curtailments
Other finance income
Actuarial gain
Deficit in scheme at year end
History of experience gains and losses
Difference between expected and actual returns on scheme assets:
amount
Percentage of pension assets at year end
Experience gains/(losses) on scheme liabilities:
amount
Percentage of pension liabilities at year end
Total gain/(loss) recognised in STRGL:
amount
Percentage of pension liabilities at year end
Year ended
31 December 2004
£000’s
Year ended
31 December 2003
£000’s
403
–
–
———
403
577
–
(161)
———
416
1,135
(1,083)
———
52
1,129
(989)
———
140
458
852
–
———
1,310
971
(245)
(528)
———
198
(1,999)
(403)
400
–
52
1,310
———
(640)
(3,271)
(577)
1,350
161
140
198
———
(1,999)
458
2%
971
5%
852
4%
(245)
(1%)
1,310
7%
198
1%
23
28. Financial Instruments
General
The Bank’s main activities are:
Banking
– Lending, deposit taking, issuing of guarantees to third parties and activities in trade finance.
Investments – Purchasing of debt securities and equities.
Trading
– In securities and equities, foreign exchange and derivatives.
Financial instruments, which comprise loans and deposits, debt securities and equity shares, spot and forward foreign exchange
contracts and derivatives are used to reduce risks arising from the Bank’s main activities.
Derivatives as described in note 1k are used to hedge positions in the banking book to reduce foreign exchange, interest rate and
equity risks. Trading in derivatives with customers is done on a matching basis with banking counterparties to cover all open positions
and eliminate market risk. In addition, the Bank writes foreign exchange options covered by future foreign currency income flow.
Debt securities are used to enhance the liquidity positions. In addition, debt securities are held as collateral against lending.
Short term debtors and creditors are included in the disclosure in this note.
Risks
The Bank has an integrated risk management structure under the control of a Risk Control Manager, who is responsible for
independently monitoring risk exposure. Outside of regulatory risk, the Bank faces three main risk areas; Credit Risk, Operational Risk
and Market Risk.
Under the Risk Management structure, committees have been established for each risk area which have the responsibility for
recommending risk appetite and policy for approval by the Board and for ensuring that the Bank’s aggregate risk remains within the
risk appetite set by the Board. Risk arising out of the Bank’s business is monitored daily, and the risk appetites are reviewed at regular
intervals in light of prevailing market conditions.
(i) Credit Risk – This is one of the primary risks inherent in bank lending.
Credit risk can be defined as the risk that a borrower will not meet its obligations in relation to interest payments and loan
repayments.
The Bank’s general policy is to mitigate credit risk by evaluating in every case the credit quality of the borrower and separately to
evaluate the quality of the collateral. The Credit Risk Management Committee (CRMC) is responsible for credit risk.
The responsibility for the day to day management of credit risk lies with the Management and Account Officers within the Private
Banking and the Commercial and Corporate Banking business sectors.
Internal credit ratings and credit grades are used in the evaluation of credit risk.
(ii) Operational Risk – Operational risk can be defined as the risk of loss resulting from inadequate or failed internal processes,
people or systems, or from external events.
The Operational Risk Management Committee (ORMC) is responsible for operational risk, and assesses the implications of all
operational issues and operational volumes. Responsibility for the day to day management of operational risk lies with the
management of the Bank’s operational departments.
Risk Control Department and Finance Department monitor certain transactions on a daily basis and Internal Audit conduct regular
reviews of the Bank’s systems of control.
(iii) Market Risk – relates to those risks inherent in the treasury operations of the Bank and those arising from the use of financial
instruments.
The Market Risk Management Committee (MRMC) is responsible for market risk. The Treasurer and Chief Dealer are responsible for
the day to day management for market risk which includes liquidity risk, interest rate risk and exchange rate risk.
Liquidity Risk – Liquidity risk can be defined as the risk that a bank could have difficulty in realising assets or raising funds in order
to meet cash demands which will force the Bank to sell assets at a loss.
24
28. Financial Instruments – continued
The Bank’s general policies related to liquidity risk are to hold sufficient cash and marketable assets to match future cashflows from
maturing assets and to have a diversified deposit base in terms of maturities and counterparties.
The liquidity risk is monitored regularly by Finance Department which uses the ratio of net assets divided by the total deposits within
time bands of 0 to 8 days and 8 days to 1 month. As at 31 December 2004 the ratios for the above bands were +25% and +11%
respectively compared with limits of 0% and -5% respectively. As at 31 December 2003 the ratios for the above bands were +22%
and -1% respectively.
Interest Rate Risk – Interest rate risk can be defined as the risk that arises from re-pricing mismatches in the Bank’s books in an
unstable interest rate period.
The Bank’s general policy in relation to interest rate risk is to impose strict limits on re-pricing mismatches which will reduce possible
losses.
Finance Department monitors interest rate sensitivity gap analysis on a regular basis and calculates the possible loss in the event of
1% movement in interest rates. The gap analysis is monitored compared to limits imposed by the MRMC for each re-pricing band and
the total loss is monitored compared to a limit of 1.5% of the Bank’s capital. The gap analysis is monitored for each currency.
Part of the Bank’s return on financial instruments is obtained from controlled mismatching of the dates on which the
instruments mature or, if earlier, the dates on which interest receivable on assets and interest payable on liabilities are next reset to
market rates. The tables below summarise the re-pricing mismatch in the Bank’s non-trading books as at 31 December 2004 and
31 December 2003. Items are allocated to time bands by reference to the earlier of the next contractual interest rate re-pricing date
and the maturity date.
Interest Rate Re-pricing 2004
Less than
3 months
3–6
6 months–
months 1 year
1–5
years
Over 5
years
Non
interest
bearing
Trading
Book
Total
Assets
Deposits with Banks
Advances to Customers
Securities
Other Assets
177,615
486,853
114,277
–
———
778,745
———
1,555
30,766
12,614
–
———
44,935
———
784
47,123
10,790
–
———
58,697
———
–
3,167
24,893
–
———
28,060
———
–
–
–
–
———
–
———
2
–
–
6,214
———
6,216
———
–
–
27,767
2,610
———
30,377
———
179,956
567,909
190,341
8,824
———
947,030
———
46,200
633,480
–
–
–
(2,642)
———
Total Liabilities
677,038
———
Off Balance Sheet Items
88,085
———
Interest Rate Sensitivity Gap 189,792
———
Cumulative Gap
189,792
1,816
50,187
–
4,829
–
(1,318)
———
55,514
———
(35,999)
———
(46,578)
———
143,214
514
84,317
–
–
–
(3,563)
———
81,268
———
(36,167)
———
(58,738)
———
84,476
–
6,016
–
–
–
(19,710)
———
(13,694)
———
(15,919)
———
25,835
———
110,311
–
–
–
–
–
(534)
———
(534)
———
–
———
534
———
110,845
–
–
11,315
–
105,746
–
———
117,061
———
–
———
(110,845)
———
–
–
–
2,610
–
–
27,767
———
30,377
———
48,530
774,000
13,925
4,829
105,746
–
———
947,030
———
Total Assets
Liabilities
Deposits from Banks
Deposits from Customers
Other Liabilities
Loan Capital
Internal Funding
25
Interest Rate Re-pricing 2003
Less than
3 months
3–6
6 months–
months 1 year
1–5
years
Over 5
years
Non
interest
bearing
Trading
Book
Total
Assets
Deposits with Banks
Advances to Customers
Securities
Other Assets
Total Assets
178,824
460,707
77,317
–
———
716,848
———
1,607
55,290
16,769
–
———
73,666
———
812
–
6,117
–
———
6,929
———
–
–
34,457
–
———
34,457
———
–
–
7,057
–
———
7,057
———
6
–
2
6,346
———
6,354
———
–
–
6,342
4,647
———
10,989
———
181,249
515,997
148,061
10,993
———
856,300
———
84,678
542,372
–
–
–
(2,664)
———
624,386
———
19,110
———
111,572
———
111,572
6,558
78,876
–
4,829
–
(3,678)
———
86,585
———
9,478
———
(3,441)
———
108,131
101
4,400
–
–
–
–
———
4,501
———
–
———
2,428
———
110,559
345
10,488
–
–
–
–
———
10,833
———
(21,546)
———
2,078
———
112,637
–
–
–
–
–
–
———
–
———
(7,042)
———
15
———
112,652
–
–
17,864
–
101,142
–
———
119,006
———
–
———
(112,652)
———
–
–
–
4,647
–
–
6,342
———
10,989
———
91,682
636,136
22,511
4,829
101,142
–
———
856,300
———
Liabilities
Deposits from Banks
Deposits from Customers
Other Liabilities
Loan Capital
Internal Funding
Total Liabilities
Off Balance Sheet Items
Interest Rate Sensitivity Gap
Cumulative Gap
A positive interest rate sensitivity gap exists when more assets than liabilities are re-priced during a given period. Although a positive
gap position tends to benefit net interest income when interest rates are increased, the actual effect will depend on other factors
including the extent to which repayments are made earlier or later than the contractual date and variations in interest rate sensitivity
within re-pricing periods and among currencies.
As at 31 December 2004 the total possible loss from movements in interest rates of 1% was £537,000 (2003: £205,200) compared
to a loss limit of £1,630,100 (2003: £1,628,600) which is 1.5% of the Bank’s capital.
Foreign Exchange Risk – Foreign exchange risk can be defined as the risk affecting open currency positions by fluctuations in
exchange rates.
The Bank’s general policy in relation to foreign exchange risk is to match all positions and limit the total net overnight open position
to £2,500,000.
Overall responsibility to manage foreign exchange risk lies with the Chief Dealer. Finance Department monitor foreign exchange
positions daily and report to Executive Management.
Structural Currency Exposure
The Bank does not maintain material non-trading open currency positions other than in sterling.
26
Transactional Currency Exposures
The Bank’s transactional currency exposures in the non-trading book are non-structural exposures that give rise to the net currency
gains and losses recognised in the profit and loss account. Such exposures comprise the non-trading monetary assets and liabilities
of the Bank that are not denominated in sterling.
Overall foreign exchange open positions are very low and represent minimal risk.
As at 31 December 2004 the total open positions were £598,000 (2003: £447,000) of which £258,000 (2003: £310,000) was a long
position and £340,000 (2003: £137,000) was a short position giving a net short open position of £82,000 (2003: £173,000).
Out of the total net position the US Dollar open position was £55,000 (2003: £125,000).
Derivatives
The Bank holds derivatives for hedging purposes in the banking book. Derivatives sold to customers are classified as trading, the
Bank closes all positions to eliminate market risk hence the positive fair value of trading derivatives purchased represents
counterparty risk.
Fair Values of Derivatives
The fair value of a derivative contract represents the amount at which that contract could be exchanged in an arm’s length transaction,
calculated at market rates current at the balance sheet date. Positive fair values arise where gross positive fair values exceed gross
negative fair values on a contract by contract basis. This equates to a replacement cost.
At 31 December 2004 and 31 December 2003 the notional principal amounts and fair values of trading and non-trading instruments
entered into with third parties were as follows:
Trading
Fx options
Interest rate caps
Fx forwards
Interest rate swaps
Notional
2004
£000’s
Principal
2003
£000’s
59,386
–
199,545
10,333
———
269,264
———
65,131
16,942
239,742
11,150
———
332,965
———
Year end positive fair values
2004
2003
£000’s
£000’s
945
–
1,503
162
———
2,610
———
1,438
–
2,965
244
———
4,647
———
Year end negative fair values
2004
2003
£000’s
£000’s
945
–
1,503
162
———
2,610
———
1,438
–
2,965
244
———
4,647
———
For traded contracts, book values equal fair values, which are reported as part of other assets and other liabilities in notes 17 and 20.
Non Trading
Interest rate swaps
Forward rate agreements
Notional
Principal
2004
£000’s
Year end
positive
fair values
2004
£000’s
Year end
positive
book values
2004
£000’s
Year end
negative
fair values
2004
£000’s
Year end
negative
book values
2004
£000’s
74,321
64,583
———
138,904
———
–
1
———
1
———
–
–
———
–
———
1,678
21
———
1,699
———
570
–
———
570
———
27
Non Trading
Interest rate swaps
Forward rate agreements
Notional
Principal
2003
£000’s
Year end
positive
fair values
2003
£000’s
Year end
positive
book values
2003
£000’s
Year end
negative
fair values
2003
£000’s
Year end
negative
book values
2003
£000’s
64,412
29,548
———
93,960
———
14
5
———
19
———
–
–
———
–
———
3,342
1
———
3,343
———
828
–
———
828
———
Total positive and negative book values are part of the accrued interest of the hedged items.
Maturity Analysis of Derivatives
At 31 December 2004 and 31 December 2003 the notional principal amounts and replacement cost, by residual maturity, of the Bank’s
trading and non-trading derivatives were as follows:
Exchange rate contracts
Notional principal
Replacement cost
Interest rate contracts
Notional principal
Replacement cost
Exchange rate contracts
Notional principal
Replacement cost
Notional principal
Replacement cost
28
One year
or less
2004
£000’s
One to
five years
2004
£000’s
Over
five years
2004
£000’s
Total
2004
£000’s
258,225
2,420
706
28
–
–
258,931
2,448
98,792
1
50,445
162
–
–
149,237
163
One year
or less
2003
£000’s
One to
five years
2003
£000’s
Over
five years
2003
£000’s
Total
2003
£000’s
304,873
5,081
–
–
–
–
304,873
5,081
65,300
19
49,710
244
7,042
–
122,052
263
Counterparty Risk Analysis
The total of positive and negative fair values arising on trading derivatives at the balance sheet date have been netted where the
Bank has a legal right of offset with the relevant counterparty. Total positive fair values after netting equates to net replacement cost
which is regarded as the maximum credit exposure. All exchange-traded instruments are subject to cash requirements under the
standard margin arrangements applied by the individual exchanges. Such instruments are not subject to significant credit risk.
At 31 December 2004 and 31 December 2003 the net replacement costs by counterparty of the Bank’s trading and non-trading
derivatives were as follows:
2004
£000’s
1
–
———
1
———
Net replacement cost
Financial institutions
Non financial institutions
2003
£000’s
19
–
———
19
———
The potential risk exposure for each product equals net replacement cost as reduced by the fair value of collateral provided by the
counterparty.
At 31 December 2004 and 31 December 2003 the potential credit risk exposures in respect of the Bank’s trading and non-trading
derivatives equal the net replacement cost as specified in the fair values table.
Gains and Losses
The net gain from trading in financial assets and financial liabilities shown in the profit and loss account for the year ended
31 December 2004 includes interest receivable from loans and advances to banks and customers of £32.2million (2003: £25.8 million)
and interest payable on deposits by banks and customer accounts of £20.9 million (2003: £15.6 million).
Profits from financial instruments can be analysed as follows:
2004
Foreign exchange contracts
Debt securities
Equities and other trading
2003
Foreign exchange contracts
Debt securities
Equities and other trading
Net interest
Trading
income and
Profits other income
£m
£m
Dealing
Profits
£m
Total
£m
–
–
–
–
———
–
———
–
–
4.0
–
———
4.0
———
2.6
0.1
–
–
———
2.7
———
2.6
0.1
4.0
–
———
6.7
———
Trading
Profits
£m
Net interest
income and
other income
£m
Dealing
Profits
£m
Total
£m
–
–
–
5.0
———
5.0
———
–
–
4.0
–
———
4.0
———
2.3
–
–
–
———
2.3
———
2.3
–
4.0
5.0
———
11.3
———
29
Hedging
Non-trading derivatives, used by the Bank to hedge exposures in its banking book, are measured on an accruals basis, consistent
with the assets, liabilities or positions being hedged. The gains and losses on these instruments (arising from changes in fair value)
are not recognised in the profit and loss account immediately they arise. When the hedge transaction occurs, the gain or loss is
recognised in the profit and loss account at the same time as the hedge item.
Where non-trading derivatives are reclassified as trading or where non-trading derivatives are terminated prior to the end of the life
of the asset, liability, position or cashflow being hedged, they are measured at fair value. Any gains or losses are deferred and
amortised into interest income or expense over the remaining life of the item previously being hedged.
The tables below summarise the unrecognised gains and losses on hedges at 31 December 2004 and 31 December 2003 and the
movement therein during the year.
Total net
Gains
Losses Gains/(Losses)
2004
£000’s
£000’s
£000’s
Unrecognised gains & losses on hedges as at 1 January 2004
Of which recognised in the year to 31 December 2004
Gains & losses arising before 1 January 2004
not recognised in the year to 31 December 2004
Gains & losses arising in the year to 31 December 2004
not recognised in that year.
Unrecognised gains & losses on hedges at 31 December 2004
Of which expected to be recognised in the year to 31 December 2005
2003
Unrecognised gains & losses on hedges as at 1 January 2003
Of which recognised in the year to 31 December 2003
Gains & losses arising before 1 January 2003
not recognised in the year to 31 December 2003
Gains & losses arising in the year to 31 December 2003
not recognised in that year.
Unrecognised gains & losses on hedges at 31 December 2003
Of which expected to be recognised in the year to 31 December 2004
19
(19)
3,343
(1,726)
(3,324)
1,707
–
1,617
(1,617)
1
———
1
———
1
82
———
1,699
———
751
(81)
———
(1,698)
———
(750)
Gains
£000’s
Losses
£000’s
Total net
Gains/(Losses)
£000’s
39
(32)
5,858
(2,003)
(5,819)
1,971
7
3,855
(3,848)
12
———
19
———
19
(512)
———
3,343
———
1,726
524
———
(3,324)
———
(1,707)
Where a non-trading derivative no longer represents a hedge because either the underlying non-trading asset, liability or position
has been derecognised, or transferred into a trading portfolio, or the effectiveness of the hedge has been undermined, it is restated
at fair value and any resultant gains or losses taken directly to the profit and loss account. No gains or losses were recognised in the
year to 31 December 2004 (2003: nil).
30
Fair Values
The only on-balance sheet financial instruments held in the non-trading book for which there are readily obtainable market prices
are debt securities and equity shares. Fair values for these instruments are provided in notes 13 and 14.
The fair values for all trading and non-trading derivatives are provided above.
29. Ultimate Parent Company
The Bank is a subsidiary undertaking of Bank Leumi le-Israel B.M., which is incorporated in Israel.
The smallest group in which they are consolidated is that headed by Bank Leumi le-Israel B.M.
The consolidated accounts of these groups are available to the public and may be obtained from the Head Office in Israel at
P.O. Box 2, 24-32 Yehuda Halevi Street, Tel Aviv 65546, Israel.
31
Independent Auditors’ Report to the Members of Bank Leumi (UK) plc
We have audited the financial statements on pages 7 to 31.
This report is made solely to the Bank’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the Bank’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Bank and the Bank’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective Responsibilities of Directors and Auditors
The directors are responsible for preparing the directors' report and, as described on page 6, the financial statements in accordance
with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the
United Kingdom by statute, the Auditing Practices Board and by our profession's ethical guidance.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance
with the Companies Act 1985. We also report to you if, in our opinion, the directors' report is not consistent with the financial
statements, if the Bank has not kept proper accounting records, if we have not received all the information and explanations we
require for our audit, or if information specified by law regarding directors' remuneration and transactions with the Bank is not
disclosed.
We read the other information accompanying the financial statements and consider whether it is consistent with those statements.
We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the
financial statements.
Basis of Audit Opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to
provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement,
whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the Bank and the Group as at
31 December 2004 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the
Companies Act 1985.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London
21 February 2005
32
Notice to Shareholders of Annual General Meeting
Notice is hereby given that the Forty Fifth Annual General Meeting of the Company will be held at 20, Stratford Place,
London W1C 1BG on Monday, 18 April 2005 at 2.00pm for the following purposes namely:
Agenda
1. To receive, consider and adopt the report of the Directors and Statement of Accounts for the year ended 31 December 2004 and
the report of the Auditors thereon.
2. To elect and re-elect Directors.
The Directors retiring in rotation in accordance with the Company’s Articles are Mr. J. M. Greenwood, Mr. E. Raff and
Dr. E. Shapira.
Mr. E. Raff and Dr. E. Shapira, both of whom are eligible, offer themselves for re-election.
The Director appointed by the Board during the year and retiring in accordance with the company’s Articles of Association is
Mr. B. Lederman who being eligible offers himself for re-election.
Additional Directors appointed by the Board on 21 February 2005 and retiring in accordance with the Company’s Articles of
Association are Mrs. L. J. Secretan and Mr. C. E. Cumberland, both of whom being eligible offer themselves for re-election.
3. To approve the ordinary remuneration of the Directors.
4. To re-appoint KPMG Audit Plc as auditors of the Company to hold office for a period prescribed by Section 384(1) of the Companies
Act 1985 and to resolve that their remuneration be determined by the Directors.
5. To consider and, if thought fit, pass the following resolution which will be proposed as a Special Resolution:“THAT Article 97 of the Articles of Association is called Article 97 (A) and a new Article 97 (B) is added to read as follows:A meeting of the Directors may be held by any means of communication; each Director in the communication is deemed to be
present at a meeting of the Directors, provided only that each Director can hear what is said by any other of the Directors
participating in the communication.”
6. To approve the payment of a proposed final dividend of 46 pence per share payable on 26 April 2005.
By Order of the Board
Naomi Hillel
Company Secretary
21 February 2005.
20, Stratford Place
London W1C 1BG
NOTE
A member entitled to attend and vote may appoint one or more proxies to attend and, on a poll, vote on his behalf. A proxy need not
be a member of the Company. Forms of proxy should be sent to the Company’s Registrars, Capita Registrars (Proxies), P.O. Box 25,
Beckenham, Kent BR3 4BR, to arrive not later than 48 hours before the time appointed for the holding of the General Meeting.
33
The Israeli Economy in 2004
Economic Growth
Ongoing recovery in economic activity was evident in 2004. In
late December 2004, the Central Bureau of Statistics (CBS)
published its updated 2004 estimates for GDP growth and other
national account components. The highlight of the update was
an increase in the 2004 GDP growth estimate, from 4.0% to
4.2%. The increase is attributable to the business sector, which
grew by an estimated 6.0% in 2004, some 0.5% more than
originally forecast.
Export growth was the main driver of business sector growth in
2004. Exports of goods and services rose by 14.2% in 2004.
This increase reflects a 13.3% increase in the export of goods
and a 15.5% increase in the exports of services. Among the
branches contributing to service sector export growth was the
export of tourism services, which expanded by 30% in 2004.
Third quarter 2004 data indicated a significant decline in the
unemployment rate to approximately 10.2%. This is the first
positive significant change in the labour market since the
beginning of the economic downturn in the last quarter of 2000.
Inflation, the Exchange Rate and Monetary
Policy
The CPI index rose by 1.2% in 2004, in line with the price
stability target range set by the government of 1-3%.
During 2004 the shekel appreciated by 1.6% against the US
dollar. The appreciation of the shekel is attributable to the
weakness of the dollar in world markets. Against the currency
basket, which tends to filter out much of the cross-rate impact,
the shekel depreciated slightly in 2004 by 0.8%. This reflects
modest depreciation rates against the non-US dollar currencies
included in the basket, namely: the Euro – 6.2% depreciation,
the UK pound – 5.8% depreciation and 2.6% against the
Japanese yen.
The Bank of Israel’s interest rate, which stood at 5.2% in
December 2003, and was lowered to 4.1% in April 2004, has
since remained unchanged until late November, at which point
an additional cut was made bringing the interest rate to 3.9%
in December 2004. The interest rate reduction was explained
by the Bank of Israel’s view that developments in inflation, FX
market and the budget enable maintaining price stability with
a lower interest level.
Foreign Trade
The import of goods into Israel amounted to approximately
US$40.5 billion in 2004, and exports amounted to
approximately US$33.7 billion. Thus, Israel’s trade deficit
amounted to approximately US$6.8 billion, about US$1 billion
more than in 2003. (In nominal $ terms).
34
The impact of the rapid pace of global growth, especially in the
high technology sectors in which Israel has a comparative
advantage, was particularly notable in 2004.
The Israeli Capital Market in 2004
The Public’s Financial Assets
The public’s portfolio of financial assets amounted to
approximately NIS 1,513 billion at the end of 2004,
representing an increase of some NIS 146 billion
(approximately 10.7%) compared to the value at the end of
2003. About two-thirds of the increase in the value of the
portfolio stems from an increase in the value of shares in Israel
and abroad, primarily against the background of price gains on
the stock market, but also due to an increase in new issues on
the securities market. Hence, the proportion of shares in the
public’s portfolio of financial assets reached approximately
24.9%, a level which last occurred in 2000.
The Stock Market
The Tel-Aviv Stock Exchange (TASE) continued to post gains in
2004. The TA-100 index of the most actively traded shares rose
by 19% in 2004, and the TA-25 index of blue chip shares rose
23%. The small cap “Yeter” index, which includes those shares
not included in the TA-100 index, rose by 32.2% in all of 2004.
The Tel-Tech index of high technology shares rose by 16% in
2004. The rise of the Tel Aviv Stock Exchange was especially
notable during the last two months of 2004. This was affected
by expectations for an improvement in Israel's credit rating.
These expectations started to materialize in early 2005 when
the S&P international credit rating agency announced that it
had changed its rating outlook on Israel from “negative” to
“stable”. In the geo-political realm, the election of Mr
Mahmoud Abbas to the position of chairman of the Palestinian
Authority (PA), and the stability within the political system of
the PA were accepted as positive events by investors.
In addition to the increase in share prices, there was also a
significant increase in turnover recorded compared to 2003. An
international comparison shows that the Tel Aviv Stock
Exchange (TASE) was exceptional during the last year with an
impressive increase in trading levels of shares, compared to
most other large stock markets around the world. This
apparently indicates, among other things, that investors
believe there exists the potential to achieve high returns in
Israel, taking into consideration of course the level of risk
involved in investments.
For further information on Bank Leumi (UK) plc Banking and Financial Services
please contact:
Treasury &
Private Banking
Commercial &
Corporate Banking
Finance &
Operations
Foreign Exchange
& Treasury Products
Commercial Banking
& Media Finance
Finance & Control
Perry Asforis
020 7907 8004
Robert Sherr
020 7907 8169
Yehuda Shamir
020 7907 8123
Israel Related Business
Operations & IT Services
Shaul Shneider
020 7907 8182
Nigel Brigden
020 7907 8171
Martin Leslie
020 7907 8142
Private Banking
Tim Pereira
020 7907 8088
Christopher Barratt
020 7907 8072
Itay Cohen
020 7907 8177
Ruth Downie
020 7907 8180
Property Finance
David Griffiths
020 7907 8116
Malcolm Bloom
020 7907 8184
Alan Morhaim
020 7907 8006
International Banking
Services
Barbara Chapman
020 7907 8193
Northern Office
Charged Securities
International Trade Services
Patricia Broadley
0161 832 8995
Blackfriars House
Parsonage
Manchester M3 2JA
Telephone 0161 832 8995
Facsimile 0161 833 3627
Jonathan Ragol-Levy
020 7907 8197
Cyril Eden
020 7907 8189
Leumi Overseas Trust
Corporation Ltd
34 Hilgrove Street
St Helier Jersey JE4 5ZN
Channel Islands
Telephone 01534 639486
Facsimile 01534 639487
Human Resources
Leumi Bank & Trust Company
(Channel Islands) Ltd
PO Box 510, 27 Hill Street
St Helier Jersey JE4 5TR
Channel Islands
Richard Guillaume
Managing Director
01534 702574
David Cooper
Director Banking Services
01534 702575
Michelle Perry
020 7907 8160
Bank Leumi
(Jersey) Ltd
47-49 La Motte Street
Jersey JE4 5UL
Channel Islands
John Germain
Assistant Director
Trust & Company Adminstrator
01534 702530
35
The Bank Leumi le-Israel Group International Addresses
ISRAEL
Bank Leumi le-Israel B.M.
24-32 Yehuda Halevi Street, Tel Aviv 65546
Telephone 972 3 514 8111
Facsimile 972 3 514 8656
Leumi Bank & Trust Company (Channel Islands) Ltd.
PO Box 510, 27 Hill Street, St. Helier
Jersey JE4 5TR
Telephone 44 (0) 1534 702525
Facsimile 44 (0) 1534 702570
Leumi Global Private Banking Division
Tel Aviv
35 Yehuda Halevi Street, Tel Aviv 65546
Telephone 972 3 514 7717
Facsimile 972 3 514 9602
Subsidiary banking companies
The Bank Leumi Group has 24 subsidiaries in Israel including:
Leumi & Co. Investment House Ltd.
25 Kalisher Street, Tel Aviv 65165
Telephone 972 3 514 1212
Facsimile 972 3 514 1275
Bank Leumi le-Israel Trust Company Ltd.
8 Rothschild Boulevard, Tel Aviv 66881
Telephone 972 3 517 0777
Facsimile 972 3 517 0770
Psagot-Ofek Securities & Investments Ltd.
14 Ahad Ha’am Street, Tel Aviv 65142
Telephone 972 3 796 8888
Facsimile 972 3 796 8889
EUROPE
UNITED KINGDOM
Bank Leumi (UK) plc
20 Stratford Place, London W1C 1BG
Telephone 44 (0) 20 7907 8000
Facsimile 44 (0) 20 7907 8001
www.bankleumi.co.uk
Northern Office
Blackfriars House, Parsonage
Manchester M3 2JA
Telephone 44 (0) 161 832 8995
Facsimile 44 (0) 161 833 3627
SWITZERLAND
Bank Leumi le-Israel (Switzerland) Zurich
Claridenstrasse 34, 8022 Zurich
Telephone 41 1 207 9111
Facsimile 41 1 207 9100
Geneva
80 Rue du Rhone, 1211 Geneva 3
Telephone 41 22 318 3555
Facsimile 41 22 310 8318
LUXEMBOURG
Bank Leumi (Luxembourg) S.A.
6D, Route de Treves, L-2633 Senningerberg, Luxembourg
Telephone 352 346 390
Facsimile 352 346 396
USA
Bank Leumi USA
579 Fifth Avenue, New York, NY 10017
Telephone 1 917 542 2343
Facsimile 1 917 542 2254
Telex 62856
www.bankleumiusa.com
2 branches in New York City, 1 branch in Grand Cayman
California
Beverly Hills
8383 Wilshire Boulevard, Suite 400, Beverly Hills, CA 90211
Telephone 1 323 966 4700
Facsimile 1 323 966 4245
CHANNEL ISLANDS
Illinois
Chicago
100 North Lasalle St, Chicago, IL 60602
Telephone 1 312 781 1800
Facsimile 1 312 781 9469
Bank Leumi (Jersey) Ltd.
PO Box 528, 47-49 La Motte Street
Jersey JE4 5UL
Telephone 44 (0) 1534 617445
Facsimile 44 (0) 1534 617446
Florida
Miami
800 Brickell Avenue, Suite 1400, Miami, FL 33131
Telephone 1 305 377 6500
Facsimile 1 305 377 6544
Leumi Overseas Trust Corporation Ltd.
PO Box 658, 34 Hilgrove Street, St. Helier
Jersey JE4 5ZN
Telephone 44 (0) 1534 639486
Facsimile 44 (0) 1534 639487
Bank Leumi Group has representative offices in Argentina,
Australia, Brazil, Canada, Chile, France, Germany, Hong Kong,
Mexico, South Africa and Venezuela.
website: www.bankleumi.com
36

Board of Directors as at 31 December 2004 Bank Leumi (UK) plc

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