Bethel Finances: Ministry of Finance won't break up Tnuva

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Amid the controversy surrounding the high price of cottage cheese and other dairy products, a Ministry of Finance official has told "Globes" that the idea of breaking up Tnuva Food Industries Ltd. has been considered.

The Ministry of Finance source said, "The option has been examined, and it is good that there is such an idea about. It would be the most aggressive step and therefore we are not really there. To go into a private company and break it up would be a most extreme measure."

He added that such a step must be viewed from three angles: whether it is at all possible, would it be effective and would the price paid be worth it.

Several members of the Antitrust Authority also since on the Ministry of Industry, Trade and Labor committee examining the dairy market. The committee is headed by the ministry's director general Sharon Kedmi.

One of the senior figures at the Antitrust Authority told "Globes," that "Tnuva is already recognized as a monopoly and that breaking up such a company would be a most extreme step and difficult to implement even in a country like the US, which believes deeply in breaking up monopolies."

Bethel Finances: BoI to raise bank capital requirements

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The Bank of Israel is to raise the core capital requirements for the five largest banks in Israel, as it moves to implement the Basel III rules on banking supervision. It is believed that Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI) will have to raise their core capital adequacy ratio to 9-9.5%, while the minimum for Israel Discount Bank (TASE: DSCT), Mizrahi Tefahot Bank (TASE:MZTF), and First International Bank of Israel (TASE: FTIN) will be 8-8.5%. This means that the banks will have to expand their capital by an aggregate NIS 7 billion.

By the end of the year, Supervisor of Banks David Zaken will issue clear guidelines on targets and timetables, but according to estimates the banks will be given two years to reach the new target, that is, until the end of 2013. At present, the minimum capital adequacy ratio for all the banks is 7.5%. Apart from First International, none of the banks is within the new target.

Under the Basel III rules, the regulator in each country has to define banks whose failure would carry systemic risk, to be designated Systemically Important Financial Institutions (SIFI). Such institutions have to be set especially strict capital requirements, with the recommended ration being 8-9.5%. The Bank of Israel designated Bank Hapoalim and Bank Leumi as SIFIs six months ago.

It may be that Zaken will eventually decide to impose the higher capital ratio on all the banks. The Bank of Israel says that the new guidelines will be set after a "dialogue" with the banks.

Bank Hapoalim and Bank Leumi currently have capital adequacy ratios a little over 8%. To boost the ratio to 9%, Bank Hapoalim will need to raise capital of NIS 3 billion, and Bank Leumi will need to raise NIS 2.5 billion. Discount and Mizrahi-Tefahot each have a core capital adequacy ratio of 7.7%. To raise this to over 8%, Discount will need additional capital of NIS 800 million, and Mizrahi-Tefahot NIS 500 million. As mentioned, First International's ratio is already above the new target, at 8.19%.

Expanding their capital, even if happens over two years, will mean a fall in the banks' return on equity, and reduce their ability to pay dividends. Alternatively, the banks can reduce the credit that they give, thus reducing their risk assets and raising their capital adequacy ratio. Discount Bank adopted this course in the first quarter, when it reduced credit by NIS 2 billion in order to reach the required capital adequacy ratio of 7.5%.

Bethel Finances: Fuel prices send trade deficit soaring

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Israel's trade deficit rose 208% to $7.2 billion in the first half of 2011, from $2.3 billion in the first half of 2010, the Central Bureau of Statistics reported today. 80% of the trade deficit was due to imports of fuel, whose price rose sharply in the first half, and to falling exports. Israel's export/import ratio plummeted in the first half to 73.7% from 86.6% in the first half of last year.

The growth in the imports of goods continued in June. Imports of raw materials (excluding diamonds and fuel) rose by an annualized 16% in trend figures in April-June, and imports of investment goods (excluding ships and planes) rose by an annualized 34%. Imports of vehicles and machinery, which account for 72% of the imports of investment goods, rose by an annualized 79%.

Imports of consumer goods rose by an annualized 18% in April-June.

These imports reflect robust economic activity and strong domestic demand, albeit the growth rate has slowed somewhat. Particularly worrying is the slowdown in industrial exports, the growth engine of the economy, which fell by an annualized 1.5% in April-June, after rising by an annualized 18.9% in January-March. The growth in high-tech exports ground to a near complete halt in April-June, and exports by critical high-tech subsectors (such as electronic components) suffered double-digit declines. Exports of pharmaceuticals fell by over 12% ($100 million a month).

Exports of mixed high-tech exports fell for the second straight month in June, and mixed low technology exports fell for the first time in over a year.

Bethel Finances: Shekel weakens over 1% against dollar

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The shekel weakened against the US dollar in foreign exchange trading today. The representative rate was set this afternoon at NIS 3.4340/$, 1.059% above Friday's rate.

Against the euro, the shekel strengthened by 0.621%, to NIS 4.8366/€. Fears of a worsening financial crisis in Europe are thought to be behind the weakening of the euro.

"Once the markets calm down a over the debt crisis in Europe little in the next few weeks, which will strengthen the euro and weaken the dollar, the shekel can be expected to resume its appreciation against the latter," Bank of Jerusalem says in its weekly market survey. The bank sees the shekel-dollar rate in the NIS 3.371-3.422/$ range this week.

Bethel Finances: IEC out of gas - electricity prices to soar 18%

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"Electricity rates will rise by 18%," Public Utilities Authority (Electricity) chairman Amnon Shapiro told a special session of the Knesset Economic Affairs Committee, which convened to discuss the issue. He presented figures which broke the reasons for the rate hike: disruption of natural gas deliveries from Egypt (7%), the directive by Minister of Environmental Protection Gilad Erdan for Israel Electric Corporation (IEC) (TASE: ELEC.B22) to use diesel instead of fuel oil (7%), and a routine update because of delays in the construction of power stations (4%).

The Ministry of Finance's intention to levy excise on diesel used for electricity production was "greed, and insensitivity in the face of the difficulties facing Israeli households," said Economics Committee chairman MK Carmel Shama (Likud) at the start of the meeting about the forecast of a 20% rise in electricity rates.

Disruptions in gas deliveries from Egypt has forced IEC to increase its use of diesel seven-fold. The utility pays NIS 3,300 in excise and VAT per ton of diesel it consumes, compared with NIS 14 per ton for fuel oil. Erdan's directive forces IEC to greatly restrict its use of fuel oil and almost exclusively use diesel.

Consequently, the Treasury will reap billions of shekels in unplanned tax revenues from a 20% hike in electricity rates - a rise which have knock-on effects on prices throughout the economy, because electricity is a basic input for most products manufactured in Israel. Shama said that he had asked Minister of Finance Yuval Steinitz to cancel the excise on diesel for electricity production, and that the Economics Committee would go to war over the issue.

IEC chairman Yiftach Ron-Tal said, "If there is no solution to the purchase of diesel, how will I generate electricity? We have diesel reserves for four to six weeks. Under current circumstances, we're receiving only half of the natural gas, and we don’t have the money to buy diesel. In 2012, due to the absence of Egyptian gas, we'll be drawing more from the dwindling Yam Tethys reserves, which will run out in early 2012."

Bethel Finances:BoI sees home price moves working over two years

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"The global slowdown is liable to cause a slowdown in the rate of economic growth in Israel, which would moderate the rate of inflation," states the Bank of Israel in the minutes of the interest rate decision for July. Governor of the Bank of Israel Stanley Fischer kept the interest rate unchanged at 3.25%.

The narrow monetary forum discussed difficulties of Israeli exporters, due to the worsening conditions in target markets in the US and Europe. Exporters have to cope with the strengthening of the shekel, which is liable to worsen due to the wide interest gaps between Israel and the US and Europe.

Belying Ministry of Finance concerns of a possible shortfall in tax revenues, the Bank of Israel states, "Tax revenues this year are expected to exceed the forecasts used as the basis for the budget, and the deficit is expected to be lower than the maximum 3% of GDP defined by law, even assuming full expenditure of the budget."

The narrow monetary forum also discussed the effect of policies to cool down the real estate market. All the participants said that it was premature to see the effect of various policy measures in the available data. "The effect will be reflected in the data of the next few months, at the earliest, and is expected to continue during the next two years; more time is needed before the extent of the policy measures’ effect on house prices can be assessed. Moreover, the effect of the interest rate on the share of houses for investment purposes is very slow, and is just starting."

The minutes reveal disagreements between the top Bank of Israel officials about future developments in the real estate market. The member of management who recommended increasing the interest rate this month added that in his opinion the house price problem required action to be taken this month, either via the interest rate or via other policy measures.

This led to a discussion of the need for another macro-prudential measure in the housing market. The participants expressed concern that the introduction of too many policy measures in addition to increases in the interest rate could result in a sharp drop in house prices instead of a gradual decline.

The Bank of Israel Research Department predicts that inflation in 2011 will exceed the 3% inflation target ceiling, and that it will only come back within the target range early next year. The Research Department also expects the interest rate to rise gradually to an average of 4.1% in the second quarter of 2012.

Bethel Finances: June tourism to Israel hits all-time high

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June 2011 was a record month for Israeli tourism and aviation. Despite political events, not only was Israel able to keep up last year's record of incoming tourists, but even exceeded the record by 7%.

A record 262,000 tourists and day visitors entered Israel in June, 1% more than in June 2010, and 25% more than in June 2009. Tourist entries (tourists who stayed for more than one night) also reached an all-time high of 228,300 in June (87% of total visitors), 7% more than in June 2010 and 4% more than in June 2009.

The Ministry of Tourism cites Central Bureau of Statistics figures that 1.6 million visitors arrived in the first half of 2011, similar to the 1.63 million visitors in the first half of 2010, and suggesting that this will be a record year for tourism. 1.4 million of the entries were tourists, 4% more than in the first half of last year.

According to June reports of aviation operations at Ben Gurion Airport and the Ministry of Tourism, 1,161,914 passengers passed through the airport on 9,055 international and domestic flights in June. There were 1,093,689 international passengers in June, 11.25% more than in June 2010. The number of international flights rose by 9.36% to 8,220 flights in June, compared with the corresponding month.

Ben Gurion Airport handled 68,225 domestic passengers in June, 24.4% more than then 54,838 domestic passengers in June 2010.

Israeli airlines carried 434,388 passengers in June, 39.7% of all passengers at Ben Gurion Airport during the month, but 2.5% fewer than in June 2010. The greatest increases in departing passengers in June, compared with the corresponding month, were to Ukraine, Greece, and the Netherlands.

40,900 tourists arrived on direct flights to Eilat in the first half, 38% more than in the first half of last year.