Board of Directors Bank Leumi (UK) plc

Transcription

Board of Directors
Bank Leumi (UK) plc
as at 31 December 2006
Executive Management
Eitan Raff
Chairman
Baruch Lederman
Managing Director and Chief Executive Officer
Sir Bernard Schreier
Deputy Chairman **#~#
Collin E. Cumberland
Director of Commercial & Corporate Banking
Baruch Lederman
Managing Director
& Chief Executive Officer **~
Lesley J. Secretan
Director of Finance & Operations
Collin E. Cumberland
John Daly **~
Robert Glatter *~
Walter K. Goldsmith *#~
Internal Audit, Compliance &
Risk Management
David R. Meller **
Siegfried R. Ramseyer *~
Lesley J. Secretan
Gordon Cripps
Head of Internal Audit
Eric H. Senat **
Dr Ehud Shapira
Company Secretary
Naomi Hillel
* Members of the Audit & Remuneration Committee
** Members of the Executive Committee
~ Members of the Credit Committee
# Committee Chairman
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 �e Financial Services Authority
Bank Leumi (UK) plc and subsidiaries
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Relationship Banking ‘Together We Go Further’
At Bank Leumi the customer’s needs come first. We work to establish a genuine partnership.
For trade with Israel: your ideal partner
Private Banking and Wealth Management
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.
Our Private Banking capability provides a comprehensive range of
services needed for high net worth clients. �is includes all the main
services from both an onshore and offshore location (provided by Bank
Leumi Jersey Limited) so as to be able to service British, UK resident,
but not domiciled, persons, as well as clients based throughout the
world. �e main parts of the service include investment banking, wealth
management and fiduciary services from Jersey. Our experienced team
of investment managers offer an advisory and/or safe custody service
for both private individuals as well as expert investors whether
personal or corporate. Where relevant we can advise the client’s
financial needs, having regard for their objectives and attitude to risk.
�ese are carefully assessed and it is only when these are fully
understood that a particular strategy is recommended. �is can then
be implemented through either an open architecture or in-house
managed facility. �e client’s dedicated manager will then regularly
review the client’s needs and requirements taking into account any
changes in the international economy and tailoring the investment
strategy to ensure that their objectives continue to be successfully
met.
Trade Finance
Our Trade Finance team has a deserved reputation for its specialised
knowledge and efficient delivery. �e 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 property and
hotels, for both UK and off-shore borrowers. We have preference for
shorter term financing and the flexibility to meet individual
requirements.
Commercial Finance
�e Bank has an experienced team of account managers dedicated to
providing a first class service to a wide range of commercial and
corporate borrowers, particularly those engaged in International Trade.
Media Finance
�e approach of our Media financing unit is distinctive. It combines a
deep understanding of the Television and Film production industry with
the experience necessary to tailor specific financing packages for
customers operating in the sector. �e unit has become a leading
provider of tax based film production finance and they are widely
considered experts in this area.
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 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 UK property or investment portfolios to cover a variety of
purposes including providing funds for unforeseen circumstances.
We are also happy to introduce clients to the most convenient part of
the wider Bank Leumi Group so that they can continue to enjoy the
benefits of the Private Banking service.
Offshore Services
Commodity Finance
�e focus of the Commodity Finance team’s business is the provision
of the short term transactional finance to traders of the three main
commodity groups: metals (mainly steel and those base metals which
are traded on the London Metal Exchange – aluminium, copper, nickel,
tin, lead and zinc), soft (agricultural) commodities – primarily coffee,
cocoa, rice and nuts – and to a lesser extent, energy (oil and coal).
�e team’s expertise, built up over many years, lies in their
understanding of the commodities markets and the values that can be
applied to the various grades and origins of commodities at given
locations worldwide, together with use of the commodity futures
markets to protect those prices, where necessary.
Executive Mortgages
We have developed an innovative mortgage product aimed principally
at high-earning expatriate Americans seeking to buy a home in the UK.
Mortgages are interest only, typically for a 5 year term and may be
domiciled in Jersey which can be tax efficient in certain cases. We also
offer the ability to switch borrowings between various currencies and
can recommend the services of a currency manager, if required.
Factoring and Invoice Discounting
�ese services are available via Leumi ABL Limited. Established during
2006 an experienced team is now in place and is able to deliver cash
flow solutions to businesses against the strength of their assets –
principally receivables. Sales ledger management and bad debt
protection are also available.
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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 offering
attractive interest rates, Bank Leumi (Jersey) provides highly
competitive dealing rates in foreign exchange and securities, together
with discretionary and advisory Investment Management services.
Credit facilities can be provided where suitable collateral is available,
which includes the provision of residential mortgages secured on UK
property, which are designed to be particularly attractive to those
clients who are resident but non-domiciled for tax purposes in the UK.
�e 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.
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 hedge against changes in both
interest and currency exchange rates. Direct access to our Dealers is
available for “expert” investors and traders.
Chairman’s Statement
I am pleased to present the Bank Leumi (UK) Group's Annual Report for 2006, which reflects a very successful year's performance.
�is year, we have continued 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 new Financial Reporting requirements a more detailed review of the results for the year and a business review can now be
found within the Report of the Directors.
Corporate Governance
Both the Board of Directors and 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.
Results Highlights
�e Group net profit amounted to £12.6 million an increase of 17% with a net return on capital of 11.5% compared with 10.1% for the
previous year.
�e Group profit before tax amounted to £18.4 million an increase of 20% with a pre-tax return on capital of 16.7%.
In a year of continued growth the balance sheet footings have increased to £1.3 billion an increase of 17%.
Customer lending reflects an increase of 16% to £788 million and customer deposits increased by 15% to over a billion sterling at £1,044
million.
�e highlights of the year include:
• �e successful establishment of an Invoice Discounting and Factoring subsidiary, Leumi ABL Limited, to broaden the scope of the Bank’s
commercial lending activity
•
Further integration and development of the Jersey-based offshore bank and trust company acquired in 2005
•
Restructuring and refocusing of the bank’s Private Banking and Wealth Management division
•
Significant growth in the area of Commodities Financing following the recruitment of a team specialising in this area
•
Continued strong returns from property finance activities, including the development of a niche mortgage product aimed at US expatriates
working in the UK
•
Increasing business with Israeli corporates investing in the UK and Europe, particularly those coming to the market via AIM
(In line with generally accepted accounting principles, the balance sheet and profit and loss account are presented in accordance with recent standards issued by the
Accounting Standards Board as part of its convergence with IFRS. �erefore in the current period the Bank has adopted FRS23, the applicable aspects of FRS25 and
FRS26. Advantage has been taken of the exemption in FRS 25 and 26 not to restate comparative information and care should therefore be taken when interpreting
comparisons between 2005 and 2006.)
Directors, Management and Staff
As can be seen from the highlights above, 2006 was again a period of investment and expansion for the Bank Leumi (UK) Group. �e year
was a successful one with significant growth in the Bank’s business.
I would like to thank my fellow Directors, especially Sir Bernard Schreier, Deputy Chairman, and Baruch Lederman, Managing Director & C.E.O.,
for their leadership and contribution over the past year. I would also like to extend special thanks to the Management and Staff for their efforts
and achievements which greatly contributed to this year of record results for the Bank Leumi (UK) Group.
Eitan Raff
Chairman of the Board of Directors
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Report of the Directors
�e Directors present their Report and the Accounts of Bank Leumi
(UK) plc and subsidiaries for the year ended 31 December 2006.
Activities
recovered from the previous year’s soft patch where the Treasury had
to revise its 2005 forecast downwards to 1.7%. Growth in 2006 was
driven by a rise in the service sector and consumer spending. �e
housing market remained buoyant and secured lending picked up.
�e Bank and its subsidiary undertakings are engaged in the business
of banking and related financial services.
Unemployment in the UK continued to edge up in 2006 as substantial
net inward migration boosted labour supply.
Bank Leumi (UK) plc was founded in 1959 and continues the activity
of the Leumi Group in England that began in 1902. �e Bank operates
in London, through a branch in Manchester and a banking subsidiary on
the island of Jersey, Bank Leumi (Jersey) Limited and also through a
trust company, Leumi Overseas Trust Corporation Limited, also located
in Jersey, which is fully owned by Bank Leumi (Jersey) Limited. On 14
March 2006 a dormant subsidiary of the Bank changed its name to
Leumi ABL Limited from APAK Finance and Trading Company Limited.
In June 2006 Leumi ABL Limited commenced trading from offices in
Brighton in the competitive Factoring and Invoice Discounting market.
�e Bank of England raised interest rates by 0.25% in August and
November of 2006, adding a further 0.25% in January 2007, citing
inflationary pressures at 15 year highs along with wage concerns and
limited spare capacity in the economy.
Bank Leumi (UK) plc operates in the commercial and corporate lending
market, together with a Private Banking and Wealth Management
capability.
Commercial and Corporate Activity
�e Bank’s commercial and corporate banking activity includes
financing property, international trade, Israel related business and Israeli
companies active in England and in financing the media sector. Bank
Leumi (UK) plc finances a wide range of activities in the property field
in the UK and Western Europe including property investment and
development and financing of commercial and residential property. �e
financing is provided to both local and foreign customers. �e lending
activity, particularly trade finance is also complemented by an excellent
treasury and foreign exchange dealing room.
�e Bank has the appetite to expand in the commercial and corporate
market and towards the end of 2005 it recruited a team with extensive
experience in financing cross border trading in commodities. Whilst such
finance has long been a feature of the Bank’s business the additional
expertise has allowed it to substantially expand this area of business
during 2006.
During 2006 the Bank addressed a gap in its product range by
establishing a Factoring and Invoice Discounting operation. �is is an
important area of finance and a natural fit with the trade finance
capability. Leumi ABL provides an Invoice Discounting service that
considers outstanding invoices as assets and releases cash
immediately. Invoice Discounting is an alternative way of generating
funding for businesses and as such provides a cost effective way for
profitable businesses to improve their cash flow. Leumi ABL’s Factoring
service immediately boosts the cash-flow of a client company and
removes the administrative burden of debt collection.
Private Banking and Wealth Management
�e private banking and wealth management offering centres around
an investment service aimed at both high net worth, personal and
corporate clients. �e Bank offers an extensive range of deposit and
investment accounts, together with securities dealing, structured
products, foreign exchange and hedging facilities provided through the
dealing room.
In accordance with the strategy to expand the Leumi Group’s private
banking activity the Bank purchased a Jersey based bank and trust
business during 2005 which has allowed the Bank to significantly
expand the range of offshore services offered to clients, particularly
those who are resident but non-domiciled for tax purposes.
General Economic Environment
�e general consensus for the UK GDP is 3.0% for 2006, in line with
the UK Treasury’s forecast. �e UK economy in 2006 appears to have
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While interest rates are likely to rise further in the first half of this year, it
is anticipated that rates will likely be falling by the second half of 2007
due to slowing growth and fading inflationary pressures.
CPI annual inflation – (the UK Government's target measure) was 3%
in December, the highest on record. �e largest upward effect came
from transport costs. Prices of fuel and lubricants rose this year, in large
part reflecting the increase on fuel duty which came into effect at the
beginning of December 2006.
RPI inflation rose to 4.4% in December, the highest since December
1991. Housing costs excluded from the CPI measure had a large
upward effect, mainly due to mortgage interest payments increasing
due to the interest rate increase.
�e FTSE gained 11.5% in 2006, closing the year at 6220. �is move
was in line with other major indices. Similar gains are anticipated for
2007 as UK companies continue to reflect good results.
Sterling performed very strongly during 2006, adding 18% on average,
whilst touching 1.9847 against the US Dollar, levels not seen since
1992.
UK Property Market
�e UK residential market continued to be very strong in 2006 with
prices rising by 9% over the country as a whole. London was stronger
still and Central London recorded price rises around 16%. �e driving
force for these figures was GDP growth higher than originally predicted.
2007 started well for the market but there are already signs that price
growth is cooling as the effects of the unexpected interest rate rise in
January bite, with the prospects of further interest rate rises to come.
Even so, few predict a slump and the consensus view appears to be
that we can expect rises of 3-5% nationally but with Central London
leading the way with a projected rise of at least 9%. �e top end of the
London market could rise by as much as 15%. Although these figures
appear entirely positive they mask large regional swings and we retain
a cautious approach to our residential development funding policy.
�e commercial sector is also very buoyant with the weight of
investment money and GDP growth continuing to keep demand and
prices high. Occupier demand rose steadily throughout 2006. �e health
of this market is underpinned by the reluctance of lenders to become
overexposed in speculative development, limiting the volume of supply.
�e investment lending market, however, is highly competitive. We
expect the sector to maintain its strength in the coming year. Bank
Leumi (UK) plc’s involvement in the commercial sector is focused on
short term projects and trading opportunities where value can be added
and we will continue our prudent approach in 2007.
Regulatory Environment
�e financial services industry is governed by the Financial Services and
Markets Act 2000, the effect of which empowers the Bank’s regulator,
the Financial Services Authority, and requires them to issue codes,
make and enforce rules, and provide guidance. Regulation is very much
an evolving science and has recently been heavily impacted by the
effects of European Directives aimed at creating a single European
market for financial services.
Bank Leumi (UK) plc is conscious of regulatory change and has a
structure and established procedures to keep it abreast of changes to
the rules under which it must operate. Going forward the major
regulatory impact will be brought about by the Capital Requirements
Directive (the European equivalent of Basel II), and the Markets in
Financial Instruments Directive (MiFID) which has led to significant
change to the rules by which investment business is governed. �ese
changes will come into effect during the course of 2007 and we believe
we are well advanced in our preparation for these new requirements.
�e Bank’s two Jersey subsidiaries operate under the legal structure of
the State of Jersey, and the codes of practice issued by the Jersey
Financial Services Commission. �e present regulatory environment is
relatively stable in that there are fewer changes to the regulatory
requirements. Recent developments however have been led by the
introduction of the Code of Practice for Deposit Business with which
we comply.
�e increasing trend in customer deposits over the last five years is
reflected in the graph below.
£ Millions
1,100
Customer deposits
1,000
1,044
900
908
800
774
700
600
603
636
500
400
300
200
Business Review
100
Many of the specific markets in which the Bank and its subsidiaries
operate experience a high degree of competition. �e Bank is a niche
player in the markets that it wishes to specialise in. In the UK our major
competitors can be drawn from the major high street banks that offer
any one of our niche services. Other competitors are the Israeli banks
operating in London of which Bank Leumi (UK) plc is the largest.
Results and Dividend
In line with the UK’s generally accepted accounting principles, the
balance sheet and profit and loss account have been presented in
accordance with recent standards issued by the ASB as part of its
project for convergence with IFRS. �erefore in the current period the
Bank has adopted FRS 23, the applicable aspects of FRS 25 and FRS
26. Advantage has been taken of the exemption in FRS 25 and FRS
26 not to restate comparative information. However an additional note
(note 2) is included showing how the comparative year would have
been shown if restated. �is gives additional information to the reader
of these accounts.
Balance Sheet and Profitability
Balance Sheet
Total consolidated assets of Bank Leumi (UK) plc amounted to £1,277
million at the end of 2006 compared to £1,093 million at the end of
2005, a 17% increase.
Balance sheet – Customer Business
Customer lending stood at £788 million compared with £680 million
the previous year an increase of £108 million or 16%.
�e increasing trend in customer lending over the last five years is
reflected in the graph below.
£ Millions
800
2003
2004
2005
2006
Debt Securities and Inter-Bank business
During 2006, the level of debt securities fell and overall the level of
inter-bank business increased. Both of these items are primarily used
for matching interest rate risk and liquidity purposes.
Capital
Shareholders’ funds totalled some £117 million as at 31 December
2005 and a final dividend was paid on 4th May 2006 of £6.9 million
or approximately 70% of the Bank’s post tax profit amounting to 70
pence per share leaving shareholders’ funds of some £110 million.
Undated subordinated loan capital totalled £4.8 million. Total capital
base as defined by the regulator, �e Financial Services Authority,
consisting of tier 1 and tier 2 capital was therefore around £115 million
at the end of 2005 and after the dividend payment.
In the latter part of 2006 a capital restructure took place to realign the
structure of the capital to provide a preferable structure of the capital
base. �e level of undated subordinated loan capital was increased
and the level of shareholders’ funds reduced by way of an interim
dividend. �e capital base on which the level of activity of the Bank is
supported did not change.
�e loan capital of the Bank was increased by the grant of a further
subordinated loan from Bank Leumi le-Israel, in the sum of £30.6 million
as of 28th December 2006 and on the same day the shareholders’
funds were reduced by the payment of an interim dividend of 310
pence per share totalling £30.6 million. After the transaction was
completed, shareholders’ funds totalled £79.9 million and the loan
capital totalled £35.4 million. Total capital base remained at the same
level of £115 million.
Profit and Loss Account
Customer loans
788
700
680
600
500
400
2002
489
515
567
300
As mentioned above advantage has been taken of the exemption in
FRS25 and FRS26 not to restate comparative information. �ese
relatively new financial reporting standards have increased the net
interest income in 2006 and reduced the non-interest income as certain
fee income has been designated as part of the effective interest rate
and moved into the interest section of the profit and loss account. �is
affects comparison between 2005 and 2006 results.
�e 2006 Group profit for the financial year after taxation amounted
to £12.6 million compared to £10.8 million for the previous year, an
increase of 17%.
200
100
2002
2003
2004
2005
2006
Customer Deposits as at 31 December 2006 increased by 15% to
over a billion sterling at £1,044 million compared to £908 million for
2005 an increase of £136 million.
�e Bank's main key performance indicator is the return on capital
employed and the results represented a 2006 post-tax return on
capital employed of 11.5% compared to 10.1% in 2005.
�e Group profit on ordinary activities before taxation amounted to
£18.4 million compared to £15.3 million for 2005, an increase of 20%.
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Report of the Directors continued
�is represented a pre-tax return on capital employed of 16.7%
compared with 14.4% in 2005.
�e 2006 impairment on loans and advances amounted to £0.5 million
which is considered to be a low figure, especially when considering the
increased level of customer lending. �is can be compared to a recovery
situation of £0.6 million for 2005, therefore for both of these two years
the loan loss impairment has been minimal.
Total operating profit before provisions for 2006 reflected an increase
of 28% to £18.9 million for 2006 compared with £14.7 million in 2005.
Total operating income amounted to £36.7 million compared to £29.6
million, an increase of 24%.
�e net interest income increased by 46% to £25.7 million compared
to £17.6 million for 2005 and the non interest income has reduced by
14% from £12 million in 2005 to £10.3 million for 2006.
�e Administrative expenses have increased to £16.5 million from
£13.9 million in 2005, an increase of 19%.
As detailed in the activities paragraph above, 2006 has been a year of
expansion for the Bank Leumi (UK) Group. �e average number of staff
has increased during the year to 155 from 131. �e Bank started a
new invoice discounting and factoring subsidiary which only opened its
doors for business in June 2006. �is subsidiary has not as yet broken
even but is ahead of projection for the period.
�e assessment of the economy over the next three years is that it will
continue at a similar level as today. It is expected that the property
market will remain buoyant but cool down.
�e Bank will continue to look for acquisitions which facilitate synergies
for the Group and offer customers an additional financial service or
product.
With regard to organic growth, the main area the Bank is looking to
expand is in the private banking and wealth management arena.
Dividend
�e Board of Directors recommended the payment of a 2005 final
dividend totalling £6.9 million or 70% of post-tax profit equating to 70
pence per share (2004: 46 pence) paid on 4 May 2006.
In accordance with a resolution of the Board of Directors, the Bank
paid an interim dividend of 310 pence per share for 2006 on 28
December 2006 amounting to £30.6 million.
�e Board of Directors recommends the payment of a final dividend for
2006 of £6.3 million or 50% of net Group profit equating to 64 pence
per share to be paid on 9 May 2007.
Risks and Uncertainties
�ere are a number of potential risks and uncertainties, which could
have a material impact on the Group’s long-term performance and
could cause actual results to differ materially from expected and
historical results.
Key Performance indicators
Return on Capital Employed
�e Group’s key measure of the effective use of resources is Return on
Capital Employed (ROCE). ROCE demonstrates the effectiveness of
our managers in utilising the assets of the business to deliver profits
to provide a return to our shareholders. ROCE is calculated as the
operating result divided by the total capital employed in the business
and expressed as a percentage.
�e capital employed can be defined as the capital at the start of the
year available for use the whole year. If a proposed dividend is
mentioned within the accounts this dividend amount is deducted from
the start of the year. �e ROCE is calculated on a net profit basis and
a gross profit basis. �e former is a common performance measure in
Israel and the latter a common performance measure in England.
Efficiency Ratio
One other important measure of efficiency is the level of total
expenditure compared to the level of total income. �is efficiency ratio
is calculated as total expenses divided by total income and expressed
as a percentage.
Risk Management
�e Bank has established an integrated risk management structure
that clearly assigns ownership and management of specific risks to
Executive and Senior Management. �e Board approves the Group’s
risk appetite which is set out in detailed policy documentation. An
independent Risk Control Department, under the management of a
Risk Control Manager, monitors that risk exposures are maintained
within approved parameters and appetites. On an annual basis this
unit facilitates and reviews risks arising from credit exposures,
operations market exposures, regulatory and fraud issues. As part of
the identification and review process key controls are reviewed to
ensure continued adequacy.
An "Executive Risk Committee" takes a strategic overview of risk and
the risk management process, and formulates and agrees the
processes for the control of risk. It also takes responsibility for
regulatory risk issues. �ere are three further risk committees which
formulate the relevant strategies and policies for risks emanating from
their areas of responsibility.
Ratio
2006
ROCE Net
11.5%
10.1%
�e three committees are:
ROCE gross
16.7%
14.4%
•
48%
50%
Credit Risk Management Committee – responsible for all credit risk
matters.
•
Market Risk Management Committee (formerly the Asset and
Liability Committee) - responsible for all trading and market related
risks and also has responsibility for the interest rate and liquidity
risks of the Bank.
•
Operational Risk Management Committee- responsible for all
operational related risks.
Efficiency ratio
2005
�e following reflects the Bank's structure which is in place to mitigate
these potential risks.
Future prospects
Bank Leumi (UK) plc each year prepares a three year plan which is
agreed in conjunction with the Parent Bank and approved by the Board
of Directors. �e plan for 2007 and the further two additional years
were prepared in late 2006.
�e plan is one of growth, in line with the Parent Bank’s strategy to
develop the business outside of Israel due to the saturation of the
Israeli market and the high market share which Bank Leumi le–Israel
holds in its home country.
�e plan reflects an increase in the ROCE over the coming three years.
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Credit risk is controlled by way of individual assessment of the credit
quality of each counterparty, and a separate assessment of the quality
of collateral held to mitigate the exposure. A credit grading system has
been implemented and each individual rating is independently assessed
before input. Concentration risk is carefully monitored by borrower
concentration, industry sector and country. Limits sanctioned by the
Board are applied to each of these areas.
Market risk is carefully monitored on a daily and weekly basis. Detailed
policies have been established and agreed by the Board which set out
the parameters of the Bank’s proprietary positions and trades and
these positions are reported weekly to the Market Risk Management
Committee. Interest rate risk is controlled by way of a set of mismatch
limits and liquidity monitored daily, reported weekly with projections
formulated covering the next time period. Trading Room activity is
monitored independently by the Risk Control Department.
Operational exposures are monitored by way of a loss event reporting
process which considers actual and potential losses arising from any
operational event. �ese are regularly reported to the Operational Risk
Management Committee. �is committee also considers, approves
and carefully monitors key operational system developments.
Management information in relation to risk is submitted via the Risk
Management Committees with summaries being provided to the
Board, or its specific delegated sub committees.
position of the parent company and enable them to ensure that the
accounts comply with the Companies Act 1985. �ey have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the group and to prevent and detect fraud
and other irregularities.
�e Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Bank's website.
Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Disclosure of Information to Auditors
�e Directors who held office at the date of the approval of the
Directors’ report confirm that, so far as they are each aware, there is
no relevant audit information of which the Bank’s auditors are unaware,
and each of the Directors has taken all steps that he ought to have
taken as a Director to make himself aware of any relevant audit
information and to establish that the Bank’s auditors are aware of the
information.
Board of Directors
�e present Directors are listed on page 1.
Creditor Payment Policy
�e Directors retiring in rotation in accordance with the Company’s
Articles are Sir B. Schreier, Mr. R. Glatter and Mr. S. R. Ramseyer.
�e 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.
Sir B. Schreier, Mr. R. Glatter and Mr. S. R. Ramseyer, all of whom are
eligible, offer themselves for re-election.
Special notice has been given that Sir B. Schreier who attained the age
of 70 on 28 March 1988 is offering himself for re-election.
Special notice has been given that Mr. R. Glatter and Mr. S. R.
Ramseyer, who will attain the age of 70 on 14 and 25 March 2007,
respectively, are offering themselves for re-election.
�ere are no Directors’ service contracts in existence for the Directors
proposed for re-election.
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 2006 is 8 (2005: 12).
Share Ownership
As at 31 December 2006 Bank Leumi le-Israel B.M. Group held
99.73% of the issued share capital.
During the year the Bank provided cover for its Directors and Officers
under Directors’ and Officers’ liability insurance policies.
Employees
Directors Interests
No Directors held shares in the Bank during the year.
Statement of Directors’ Responsibilities
�e Directors are responsible for preparing the Annual Report and the
Accounts in accordance with applicable law and regulations.
Company Law requires the Directors to prepare financial statements
for each financial year. Under that law they have elected to prepare
the Group and parent company financial statements in accordance with
UK Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice).
�e Group and parent company financial statements are required by
law to give a true and fair view of the state of affairs of the Group and
the parent company and of the profit or loss for that period.
In preparing these 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 UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
•
prepare the accounts on a going-concern basis, unless it is
inappropriate to presume that the group and the parent company
will continue in business.
�e average number of persons employed by the Group (including
contract staff) in each week during the year was 155 (2005: 131) and
the aggregate remuneration paid to all such persons amounted to
£7,764,615 (2005: £6,258,682).
Charitable and Political Donations
Charitable donations during the year amounted to £7,364 (2005:
£12,999). �ere 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 forthcoming
Annual General Meeting.
By Order of the Board
Naomi Hillel
Company Secretary
26 February 2007
20, Stratford Place, London W1C 1BG
�e Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
9
Consolidated Profit and Loss Account
for the year ended 31 December 2006
Notes
2006
2005
£000’s
£000’s
8,543
60,379
---------------------68,922
6,896
45,147
---------------------52,043
(43,257)
---------------------25,665
(34,456)
---------------------17,587
7,673
2,525
113
---------------------10,311
9,722
2,227
24
---------------------11,973
675
–
36,651
29,560
4
(16,498)
(13,859)
17
(1,123)
(813)
9
(157)
(157)
18,873
14,731
14
(489)
560
Profit on ordinary activities before taxation
3
18,384
15,291
Taxation on ordinary activities
7
(5,756)
(4,535)
Profit for the financial year
8
12,628
10,756
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
Non interest income
Net income from other financial instruments carried at fair value
Operating income
Administrative expenses
Depreciation of fixed assets
Amortisation of goodwill
Operating profit before provisions
Impairment losses on loans and advances
All items dealt with in arriving at operating profit for 2006 and 2005 relate to continuing operations.
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 13 to 36 form an integral part of the accounts.
10
Balance Sheet
as at 31 December 2006
Group
Notes
Assets
Cash and balances at central banks
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
2
2
2
2
Loans and advances to banks
12
315,705
164,248
315,576
164,199
Loans and advances to customers
13
787,605
680,126
704,063
609,423
Debt securities
15
155,832
237,241
144,806
224,691
Shares in group undertakings
16
–
–
11,369
11,219
9
614
771
–
80
Tangible fixed assets
17
4,093
3,858
3,602
3,466
Financial derivatives
30
4,057
1,922
4,057
1,922
Other assets
18
5,764
1,876
1,972
1,313
1,461
1,445
1,295
1,445
1,504
---------------------1,276,637
----------------------
1,192
---------------------1,092,681
----------------------
1,504
---------------------1,188,246
----------------------
1,192
---------------------1,018,952
----------------------
Intangible fixed assets
Prepayments and accrued income
Pension asset – net of deferred tax
29
Total assets
11
Liabilities
Deposits by banks
19
95,526
53,859
95,526
53,859
Customer deposits
20
1,043,538
908,371
960,183
838,274
30
4,087
1,922
4,087
1,922
Other liabilities
21
4,597
4,680
3,655
4,070
2,477
1,819
2,067
1,819
Accruals and deferred income
Provision for liabilities and charges
21
149
187
149
187
Subordinated liabilities:
Undated loan capital
22
35,489
4,829
35,489
4,829
Called up share capital
23
9,884
9,884
9,884
9,884
Share premium account
24
18,176
18,176
18,176
18,176
Available for sale reserve
25
(186)
–
(214)
–
Profit and loss account
24
62,900
88,954
59,244
85,932
Equity shareholders’ funds
24
Total liabilities and shareholders’ funds
11
90,774
---------------------1,276,637
----------------------
117,014
---------------------1,092,681
----------------------
87,090
---------------------1,188,246
----------------------
113,992
---------------------1,018,952
----------------------
11
Balance Sheet as at 31 December 2006 continued
Memorandum Items
Group
Notes
Bank
2006
2005
2006
2005
£000’s
£000’s
£000’s
£000’s
5,274
53,430
63,327
---------------------122,031
----------------------
5,635
34,499
25,772
---------------------65,906
----------------------
5,274
52,348
63,327
---------------------120,949
----------------------
5,635
34,335
25,772
---------------------65,742
----------------------
291,215
270,315
256,094
254,110
Contingent liabilities
Acceptances and endorsements
Guarantees
Other contingent liabilities
26
Commitments
Lending commitments
26
Statement of Total Recognised
Gains and Losses
Group
Notes
Profit for the financial period
Actuarial (losses)/gains recognised
in the pension scheme
Deferred tax arising on (losses)/gains
in the pension scheme
18
Available for sale investments
- Valuation losses taken to equity
- Tax on items taken directly to equity
Total recognised gains relating
to the financial period
Impact of change in accounting policy
2
Total gains and losses recognised since
31 December 2005
Bank
2006
2005
2006
2005
£000’s
£000’s
£000’s
£000’s
12,628
10,756
11,994
10,002
333
(261)
333
(261)
(133)
42
(133)
42
(327)
108
----------------------
–
–
----------------------
(430)
129
----------------------
–
–
----------------------
12,609
---------------------(1,292)
----------------------
10,537
---------------------–
----------------------
11,893
---------------------(1,238)
----------------------
9,783
---------------------–
----------------------
11,317
–
10,655
–
The accounts have been approved and signed on behalf of the Board by:
E. Raff, Chairman.
W.K. Goldsmith, Director and Chairman of the Audit & Remuneration Committee.
B. Lederman, Managing Director and Chief Executive Officer.
26 February 2007
The notes on pages 13 to 36 form an integral part of the accounts.
12
Notes to the Accounts
1. Accounting Policies
a. Basis of Accounting
�e accounts have been prepared under the historical cost
convention, except for available for sale financial assets and
derivative financial instruments and in accordance with the
special provisions of Part VII of the Companies Act 1985
applicable to banking groups. �e 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.
�e principal accounting policies applied in the preparation of
these consolidated statements are set out below. �ese policies
have been consistently applied for all the years presented
unless otherwise stated.
In line with the UK’s generally accepted accounting principles,
the balance sheet and profit and loss account have been
presented in accordance with recent standards issued by the
ASB as part of its project for convergence with IFRS. �erefore
in the current period the Bank has adopted FRS23, the
applicable aspects of FRS25 and FRS26. Advantage has been
taken of the exemption in FRS25 and FRS26 not to restate
comparative information.
�e adoption of FRS 26 has impacted on the accounting policies
for the following:
• Impairment losses
• Income recognition
• Valuation of available for sale assets
• Derivatives and hedge accounting
Details on the impact of these changes in accounting policy are
provided in note 2.
b. Basis of Consolidation
�e consolidated accounts include the accounts of the Bank and
its subsidiary undertakings made up to 31 December 2006. �e
acquisition method of accounting has been adopted. Under this
method, the results of subsidiary undertakings acquired or
disposed of in the year are included in the consolidated profit
and loss account from the date of acquisition or up to the date
of disposal.
c. Foreign Currency Translation
Transactions in foreign currencies are recorded using the rate of
exchange ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are translated
using the contracted rate of exchange ruling at the balance
sheet date and the gains or losses on translation are included
in the profit and loss account.
Trading profits from dealings in foreign currency securities are
recorded in Sterling at the exchange rate prevailing at the end
of the month in which they arise and any gains and losses
arising are reflected in the profit and loss account.
d. Financial Instruments (from 1 January 2006):
Financial assets and financial liabilities are recognised in the
balance sheet of the Group and the Bank when the Group and
the Bank become a party to the contractual provisions of the
instrument.
Loans and advances
Loans and advances are initially recognised at fair value, and are
subsequently measured at amortised cost using the effective
interest rate method. Appropriate allowances for estimated
irrecoverable amounts are recognised in profit or loss when
there is objective evidence that the asset is impaired. �e
allowance recognised is measured as the difference between
the asset’s carrying amount and the present value of estimated
future cash flows discounted at the effective interest rate
computed at initial recognition.
Financial Liabilities and Equity
Financial liabilities are initially recognised at fair value, and are
subsequently measured at amortised cost using the effective
interest rate method.
Equity instruments issued by the Bank are recorded at the
proceeds received, net of direct issue costs.
Investments
Investments in debt securities and equity shares are recognised
and derecognised on a trade date where a purchase or sale of
an investment is under contract whose terms require delivery
of the investment within the timeframe established by the
market concerned, and are initially measured at cost, including
transaction costs.
At subsequent reporting dates, debt securities that the Bank
has the expressed intention and ability to hold to maturity (heldto-maturity debt securities) are measured at amortised cost
using the effective interest rate method, less any impairment
loss recognised to reflect irrecoverable amounts. An impairment
loss is recognised in profit or loss when there is objective
evidence that the asset is impaired, and is measured as the
difference between the investment’s carrying amount and the
present value of estimated future cash flows discounted at the
effective interest rate computed at initial recognition.
Impairment losses are reversed in subsequent periods when an
increase in the investment’s recoverable amount can be related
objectively to an event occurring after the impairment was
recognised, subject to the restriction that the carrying amount
of the investment at the date the impairment is reversed shall
not exceed what the amortised cost would have been had the
impairment not been recognised.
Investments classified as either held-for-trading or available for
sale are measured at subsequent reporting dates at fair value.
Where securities are held for trading purposes, gains and losses
arising from changes in fair value are included in net profit or
loss for the period. For available-for-sale investments, gains and
losses arising from changes in fair value are recognised directly
in equity, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously
recognised in equity is included in the net profit or loss for the
period. Impairment losses recognised in profit or loss for equity
investments classified as available-for-sale are not subsequently
reversed through profit or loss. Impairment losses recognised
in profit or loss for debt instruments classified as available-forsale are subsequently reversed if an increase in the fair value of
the instrument can be objectively related to an event occurring
after the recognition of the impairment loss.
Derivative Financial Instruments
�e Bank’s activities expose it primarily to the financial risks of
changes in foreign currency exchange rates, interest rates and
equity prices. �e Bank uses foreign exchange forward
contracts, interest rate swap contracts, cross-currency swaps,
foreign exchange options and similar instruments to hedge
these exposures.
In order to reduce the risk of derivative instruments sold to
customers, the Bank’s policy is to cover all open positions by
purchasing matching derivatives in the market. �e positive fair
13
Notes to the Accounts continued
values of the purchased derivatives represent a counterparty
risk which is monitored regularly and added to the counterparty
total exposure.
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”.
Derivative financial instruments are initially recognised at fair
value and are measured to fair value at subsequent reporting
dates. Changes in the fair value of derivative financial
instruments are recognised in profit or loss as they arise as the
Bank does not apply hedge accounting.
�ereafter the derivative is classified as trading or re-designated
as a hedge of a non-trading item and accounted for accordingly.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of host
contracts and the host contracts are not carried at fair value,
with gains or losses reported in profit or loss.
e. Fixed Assets
Fixed assets are stated in the balance sheet at cost, less
depreciation and impairment. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets
as follows:
Financial Instruments (prior to 1 January 2006):
Short leasehold buildings
Computer
Fixtures, fittings and furnishings
Debt Securities and Equity Shares
f. Operating Leases
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. �e cost of investment
securities is adjusted for the amortisation of premiums and
discounts on a straight line basis. �e 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.
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. �e empty
property provision relates to discounted future costs associated
with vacant and sub-let short leasehold properties.
Derivatives
�e newly established Invoice Discounting subsidiary also offers
eligible employees pension benefits on a defined contribution
basis through its participation in the Bank’s scheme. �e assets
of the scheme are held separately from the Bank in an
independently administered fund. �ere is also a defined
contribution scheme operating within the Jersey subsidiaries.
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. �e 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
14
unexpired period
3-6 years
5 years
g. Pensions
�e Bank has 2 sections to its pension provision for employees;
(a) A defined benefit scheme, which was closed to new entrants
from 1 June 2000, (b) A defined contribution scheme was set up
for new employees; there is also a continuing defined
contribution scheme operating within the Jersey Company.
(a) Defined Benefit Scheme
�e assets of the defined benefit schemes are measured by
third party investment managers, and are held separately in
trust.
Valuations are prepared by independent professionally qualified
actuaries at least triennially. �ese determine the level of
contributions required to fund the benefits set out in the rules
of the scheme and allow for the periodic increase of pensions in
payment. �e regular service cost of providing retirement
benefits to employees during the period, together with the cost
of any benefits relating to past service is charged to operating
profit in the period. Liabilities arising from discretionary pension
increases are charged to operating profit in the period that the
increases are given.
A credit representing the expected return on the assets of the
retirement benefit pension scheme during the period is included
within other income. �is is based on the market value of the
assets of the scheme at the start of the financial period. A
charge is included within administrative expense representing
the expected increase in the liabilities of the retirement benefit
pension scheme during the period. �is arises from the liabilities
of the schemes being one year closer to payment.
�e difference between the market value of the assets and the
present value of the accrued pension liabilities is shown as an
asset or liability in the balance sheet net of deferred tax.
Payments made to the scheme reduce the liability or increase
the surplus.
Differences between actual and expected returns on assets
during the period are recognised in the statement of total
recognised gains and losses in the period, together with
differences arising from changes in assumptions.
reference to the stage of completion.
(c) Fees earned on the execution of a significant act are
recognised as revenue when the significant act is
completed.
(b) Defined Contribution Schemes
For the defined contribution schemes the amount charged to
operating profit in respect of pension costs is the Group’s
contributions payable in the period. Differences between
contributions payable in the period and contributions actually
paid are shown as either accruals or prepayments in the balance
sheet.
h. Taxation
�e 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 that recovery
is probable.
i. Income Recognition (from 1 January 2006):
(i)
Interest income
Interest income on financial assets measured at amortised
cost or available for sale is calculated using the effective
interest rate, which is the rate that discounts estimated
future cash receipts through the expected life of the
financial asset to that asset's net carrying amount.
(iii) Dividend Income
Dividend income from investments is recognised when the
shareholder’s rights to receive payment have been
established.
Income Recognition (prior to 1 January 2006):
Interest income is recognised in the profit and loss account as
it accrues, except in the case of doubtful debts.
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.
j. Goodwill
On the acquisition of a business, fair values are attributed to
the net assets acquired. Goodwill arises where the fair value of
the consideration given for a business exceeds the fair value of
such net assets. Goodwill is capitalised and amortised on a
straight line basis through the profit and loss account over its
estimated useful life of 2 years and 10 years for the acquisition
of the London based business of Riggs Bank N.A. and Riggs
Bank & Trust Company (Channel Islands) Limited respectively.
Goodwill is reviewed for impairment when there are indications
that the carrying value may not be recoverable.
(ii) Rendering of services and commissions
(a) Fees that are an integral part of the effective interest
rate are deferred and recognised in the effective interest
rate. When the financial instrument is measured at fair
value, with the change in fair value recognised in profit
or loss, the fees are recognised as revenue when the
instrument is initially recognised.
k. Cash flow
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.
(b) Fees earned as services are provided are recognised as
revenue when services of value are provided with
2. Changes in accounting policy
For the current period, the Bank and Group have adopted applicable aspects of FRS 25 and FRS 26 which are effective for accounting
periods beginning on or after 1 January 2006. �e Bank and Group have taken advantage of the exemption available in FRS 25 and
FRS 26 not to restate the comparative information to comply with these standards.
�e impact of the adoption of FRS 26 on the opening balance sheet for 2006 is as follows:
Retained Earnings
Assets
Loans and Advances to customers
General provision / IBNR
Debt securities
Other assets – deferred tax
Liabilities
Customer deposits
Other liabilities - deferred income
Movement in shareholders’ funds
Available for
sale reserve
Note
31.12.2005
£000
EIR
Adjustment
Deferred
Income
Adjustment
Fair Value
Adjustment
Fair Value
Adjustment
Restated
1.1.2006
£000
13
14
15
30
18
682,826
(2,700)
237,241
1,922
543
(1,243)
(300)
–
–
463
–
–
–
–
105
(482)
–
–
1,280
–
–
–
1,221
–
(23)
681,101
(3,000)
238,462
3,202
1,088
20
30
908,371
1,922
1,819
–
–
–
–
–
–
(1,080)
–
–
350
–
(245)
798
–
–
–
–
–
1,165
–
33
–
907,573
3,087
2,169
–
–
25
24
Movement in shareholders’ funds reflects a decrease of £1,325,000.
�e movement in shareholders’ funds together with the available for sale reserve equate to the impact of the change in accounting policy
which reflects a decrease of £1,292,000.
15
Retained Earnings
Note
Assets
Loans and Advances to customers
General provision / IBNR
Debt securities
Other assets – deferred tax
Liabilities
Customer deposits
Other liabilities - deferred income
Movement in shareholders’ funds
31.12.2005
£000
Available for
sale reserve
EIR
Adjustment
Deferred
Income
Adjustment
Fair Value
Adjustment
Restated
1.1.2006
£000
Fair Value
Adjustment
13
14
15
30
18
612,123
(2,700)
224,691
1,922
496
(1,243)
(300)
–
–
463
–
–
–
–
105
(482)
–
–
1,280
–
–
–
1,289
–
(37)
610,398
(3,000)
225,980
3,202
1,027
20
30
838,274
1,922
1,819
–
–
–
–
–
–
(1,080)
–
–
350
–
(245)
798
–
–
–
–
–
1,165
–
87
–
837,476
3,087
2,169
–
–
25
24
Movement in shareholders’ funds reflects a decrease of £1,325,000
The movement in shareholders’ funds together with the available for sale reserve equate to the impact of the change in accounting policy which reflects a decrease of £1,238,000
3. Profit on Ordinary Activities before Taxation
Group
2006
£000’s
2005
£000’s
8,416
–
6,476
(6)
282
16
1,123
269
9
813
711
157
849
157
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 £192,300 (2005: £130,600)
Amortisation of goodwill
Auditors remuneration
Audit of these accounts
Amounts receivable by auditors and their associates in respect of:
Audit of accounts of subsidiaries pursuant to legislation
Other services pursuant to such legislation
Amounts receivable by unassociated auditors in respect of:
Audit of accounts of subsidiaries pursuant to legislation
Group
2006
£000’s
2005
£000’s
170,000
140,000
22,000
20,000
–
32,750
39,000
55,000
Amounts paid to the Bank’s auditor in respect of services to the Bank, other than the audit of the Bank’s accounts, have not been
disclosed by category as the information is required instead to be disclosed on a consolidated basis.
16
4. Administrative Expenses
Group
• wages and salaries
• social security costs
• pension costs
• other administrative expenses
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
7,764
846
872
7,016
6,259
729
730
6,141
6,500
772
780
5,378
5,604
678
655
5,257
----------------------
----------------------
----------------------
----------------------
16,498
13,859
13,430
12,194
----------------------
----------------------
----------------------
----------------------
5. Directors’ Emoluments and Loans
�e aggregate emoluments of the Directors of the Bank were:
Aggregate emoluments
Of which:
Sums paid to Bank Leumi le-Israel B.M. in respect of Directors’ fees
�e highest paid Director
2006
£
2005
£
1,022,196
870,202
19,595
421,859
15,450
340,389
�e highest paid Director received the above sum in salary and benefits such as expatriate accommodation in the UK and social security
expenses in Israel plus tax on these benefits. �e Bank paid pension contributions of £4,113 in respect of the highest paid Director
(2005: £4,003). Pension contributions of £35,043 were paid by the Bank in respect of other Directors (2005: £28,965).
�e aggregate amount of loans to Directors outstanding as at 31 December 2006 amounted to £11,531 relating to 2 directors (2005:
£16,164 – 3 directors)
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.
6. Employees
�e average number of persons employed by the Group and Bank during the year was made up as follows:
Group
Managers
Clerical Staff
Others
Bank
2006
2005
2006
2005
41
112
2
29
101
1
32
100
1
25
95
1
----------------------
----------------------
----------------------
----------------------
155
131
133
121
----------------------
----------------------
----------------------
----------------------
17
7. Taxation
(a) Analysis of charge in period
UK Corporation tax on profits for the period
Foreign Tax
Adjustment in respect of prior years
Available for Sale Relief
Total current tax
Deferred Tax
Timing differences
Total deferred tax (note 18)
Tax on profit on ordinary activities
2006
£000’s
2005
£000’s
5,488
244
25
(108)
4,413
107
46
–
----------------------
----------------------
5,649
4,566
----------------------
----------------------
107
(31)
----------------------
----------------------
107
(31)
----------------------
----------------------
5,756
4,535
----------------------
----------------------
2006
£000’s
2005
£000’s
18,384
15,291
5,515
4,587
(155)
56
140
(25)
118
(160)
3
90
46
–
----------------------
----------------------
(b) Factors affecting tax charge for the period
The tax assessed for the period is higher (2005: lower) than the standard
rate of Corporation tax 30% (2005: 30%). The differences are explained below;
Profit on ordinary activities before tax
Corporation Tax in the UK of 30% (2005: 30%)
Effects of:
Foreign Tax
Capital allowances in excess of depreciation
Expenses not deductible for tax
Adjustment for Prior Year Tax
Available for Sale Relief
Current Tax charge for period
5,649
4,566
----------------------
----------------------
(c) Factors that may affect future tax charges
The Group expects to claim Capital Allowances lower than the 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.
8. 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 after tax dealt with in the financial statements is £11,994,000 compared to £10,002,000 in 2005, an increase
of 19.9%.
18
9. Intangible Fixed Assets
Acquisition of
Subsidiary
Acquisition of
Banking
Business
Total Goodwill
On Acquisition
(Bank)
£000’s
(Group)
£000’s
£000’s
Cost at 1 January 2006
Cost at 31 December 2006
Amortisation at 1 January 2006
Amortisation charged in period
Amortisation at 31 December 2006
Net Book Value at 31 December 2006
Net Book Value at 31 December 2005
768
160
928
----------------------
----------------------
----------------------
768
160
928
----------------------
----------------------
----------------------
(77)
(80)
(157)
(77)
(80)
(157)
----------------------
----------------------
----------------------
(154)
(160)
(314)
----------------------
----------------------
----------------------
614
–
614
----------------------
----------------------
----------------------
691
80
771
----------------------
----------------------
----------------------
The Directors consider each acquisition separately for the purpose of determining the amortisation period of any goodwill that
arises.
Goodwill relating to the incorporation of Leumi Bank & Trust Company (Channel Islands) Limited is amortised over a period of 10
years.
Goodwill relating to the acquisition of Private Banking London assets from Riggs Bank Europe and Riggs Bank N.A. is amortised over
a period of 2 years.
10. Related Party Transactions
The Bank is 99.73% owned by the parent company, Bank Leumi Le-Israel B.M. which is listed on the Israeli stock exchange and
whose consolidated accounts are therefore publicly available. The Bank has therefore taken advantage of the exemptions available
in FRS8 not to disclose transactions with entities that are part of the Group.
11. Currency Analysis of Assets and Liabilities
Group
Assets
Denominated in sterling
Denominated in currencies other than sterling
Total Assets
Liabilities
Denominated in sterling
Denominated in currencies other than sterling
Total Liabilities
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
577,473
699,164
569,124
523,557
515,645
672,601
535,578
483,374
----------------------
----------------------
----------------------
----------------------
1,276,637
1,092,681
1,188,246
1,018,952
----------------------
----------------------
----------------------
----------------------
636,006
640,631
616,999
475,682
574,143
614,103
583,453
435,499
----------------------
----------------------
----------------------
----------------------
1,276,637
1,092,681
1,188,246
1,018,952
----------------------
----------------------
----------------------
----------------------
19
12. Loans and Advances to Banks
Group
Repayable on demand
Remaining maturity of other loans and advances
• 1 year or less but over 3 months
• 3 months or less
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
5,440
6,998
5,311
6,949
308
309,957
1,582
155,668
308
309,957
1,582
155,668
----------------------
----------------------
----------------------
----------------------
315,705
164,248
315,576
164,199
----------------------
----------------------
----------------------
----------------------
Includes intra-group loans and advances of £2,665,000 (2005: £4,972,000)
13. Loans and Advances to Customers
Group
Analysed by remaining maturity:
• 5 years or less but over 1 year
• 3 months or less excluding repayable on demand
• repayable on demand
• Impairment allowances (note 14)
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
22,692
85,078
439,213
245,631
(5,009)
80,973
56,968
402,984
143,680
(4,479)
17,981
82,041
362,073
246,951
(4,983)
19,158
48,897
402,778
143,069
(4,479)
----------------------
----------------------
----------------------
----------------------
787,605
680,126
704,063
609,423
----------------------
----------------------
----------------------
----------------------
Amounts include:
Due to subsidiary undertakings
14,173
–
----------------------
----------------------
Group
Analysed by industrial sector
(net of specific impairment )
Property
Commerce
Industry
Other services
Hotels
Other
Less collective impairment
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
282,669
152,612
55,529
142,768
99,358
57,869
165,146
123,484
38,220
127,629
105,414
122,933
199,805
152,612
55,529
149,625
99,060
50,632
165,146
123,484
38,220
127,630
105,097
52,546
----------------------790,805
(3,200)
----------------------
----------------------
----------------------
682,826
(2,700)
707,263
(3,200)
612,123
(2,700)
----------------------
----------------------
----------------------
----------------------
787,605
680,126
704,063
609,423
----------------------
----------------------
----------------------
----------------------
Of the total amount outstanding to the largest industrial sector, property, £34.8 million (2005: £34.7 million) was covered by cash or
bank guarantees.
20
14. Impairment losses on loans and advances
2006
Group
At 1 January
Impact of implementation of FRS 26
At 1 January 2006 (restated)
Charge against profits
(net of recoveries)
Recoveries
Amount written off
FX Difference
At 31 December
2005
Individual
£000’s
Collective
£000’s
Total
£000’s
Specific
£000’s
General
£000’s
Total
£000’s
1,779
-
2,700
300
4,479
300
2,505
-
2,700
-
5,205
-
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
1,779
3,000
4,779
2,505
2,700
5,205
289
200
489
(560)
-
(560)
28
-
28
24
-
24
(160)
(127)
-
(160)
(127)
(316)
126
-
(316)
126
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
1,809
3,200
5,009
1,779
2,700
4,479
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
2006
Bank
At 1 January
Impact of implementation of FRS 26
At 1 January 2006 (restated)
Charge against profits
(net of recoveries)
Recoveries
Amount written off
FX Difference
At 31 December
2005
Individual
£000’s
Collective
£000’s
Total
£000’s
Specific
£000’s
General
£000’s
Total
£000’s
1,779
-
2,700
300
4,479
300
2,505
-
2,700
-
5,205
-
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
1,779
3,000
4,779
2,505
2,700
5,205
263
200
463
(560)
-
(560)
28
-
28
24
-
24
(160)
(127)
-
(160)
(127)
(316)
126
-
(316)
126
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
1,783
3,200
4,983
1,779
2,700
4,479
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
The impairment losses detailed above all relate to loans and advances to customers.
As at 31 December 2006 no loans had interest suspended (31 December 2005: £Nil).
15. Debt Securities
Group
Trading Securities
Issued by:
• Government
• Banks & Building Societies
• Other
Total trading securities
Bank
2006
Balance
Sheet
£000’s
2005
Balance
Sheet
£000’s
2005
Market
Value
£000’s
2006
Balance
Sheet
£000’s
2005
Balance
Sheet
£000’s
2005
Market
Value
£000’s
–
–
–
3,848
5,972
23,304
3,848
5,972
23,304
–
–
–
3,848
5,972
23,304
3,848
5,972
23,304
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
–
33,124
33,124
–
33,124
33,124
21
15. Debt Securities continued
Group
Investment securities
Issued by:
• Government
• Banks & Building Societies
• Other
Total investment securities
Total debt securities
2006
Balance
Sheet
£000’s
2005
Balance
Sheet
£000’s
2005
Market
Value
£000’s
2006
Balance
Sheet
£000’s
2005
Balance
Sheet
£000’s
2005
Market
Value
£000’s
7,246
132,987
15,599
6,870
179,335
17,912
6,876
179,275
17,897
7,246
121,961
15,599
6,870
166,785
17,912
6,876
166,793
17,897
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
155,832
204,117
204,048
144,806
191,567
191,566
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
155,832
237,241
237,172
144,806
224,691
224,690
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
73,777
82,055
105,229
132,012
105,216
131,956
73,777
71,029
105,229
119,462
105,216
119,474
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
155,832
237,241
237,172
144,806
224,691
224,690
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Debt securities
Due within one year
Due one year and over
Total debt securities
Bank
All debt securities are listed on recognised exchanges.
Includes intra-group debt securities for both Bank and Group of nil. (2005:£4,667,000)
16. Shares in Group Undertakings
The group undertakings below, all operate in Great Britain and are
registered in England (unless otherwise shown).
Leumi ABL Limited
On 14 March 2006, the Bank changed the name of a dormant subsidiary
Apak Finance & Trading Company Limited to Leumi ABL Limited. Leumi
ABL Limited commenced trading in June 2006 in the business of
providing factoring and invoice discounting services from its
headquarters at 126 Dyke Road, Brighton BN1 3TE.
On 19 May 2006 the authorised share capital of the company was
increased to £200,000 from £50,000 by the creation of 150,000 new
£1 ordinary shares. At the same time the issued share capital was
increased by £190,000 £1 ordinary shares for a consideration of
£190,000 settled in cash. The shares were re-designated as A class, B
class and C class £1 ordinary shares.
Authorised share capital
Ordinary shares of £1 each
A Class
B Class
C Class
Allotted called up and fully paid
Ordinary shares of £1 each
A Class
B Class
C Class
22
2006
£
2005
£
50,000
160,000
20,000
20,000
2006
£
160,000
20,000
20,000
2005
£
10,000
The Bank holds 80% or £160,000 of the share capital (A class shares)
with 10% or £20,000 held by each of the Chief Executive and the
Managing Director (B and C class shares).
Under the shareholders’ agreement dated the 19 May 2006 the B and
C class shareholders have agreed to gradually sell their interests in the
company to the parent company, Bank Leumi (UK) plc, over an eight year
period ending on 31 December 2014. Under the terms of this
agreement, the consideration will be determined with regards to the
results achieved by the company in the previous financial year.
The rights applying to those classes of shares are as follow:
i)
Income
Any dividends declared by the company are payable on Class A
shares only.
ii)
Capital
In the event of winding up of the company, or other return of capital,
and after the payment of debts and liabilities, the remaining assets
shall be applied amongst holders of each class of share pari passu.
iii) Directors
The holders of A shares may appoint up to four persons as directors,
and may remove from office any person so appointed and appoint
another person in his or her place. The holders of Class B and C
shares may each elect themselves as directors of the company.
iv) Voting
The holders of A shares have full voting rights. The holders of B and
C shares have the right to vote at meetings only if the business of
that meeting is to vary the rights of these shareholders.
16. Shares in Group Undertakings continued
Other Group Undertakings
Name
Activity
% Held
Nominee
100%
Trustee for the Retirement Benefit Scheme
100%
AIB Nominees Limited.
AIB Trustees Limited.
Bank Leumi (Jersey) Limited
(Resident and registered in Jersey)
Banking Services
++
Trust and company administration
*
Apak Offshore Limited
Investment
+++
100%
Stanhope Gate Nominees Limited.
Corporate Nominee
+++
100%
27 Hill Street Nominees Limited
Corporate Nominee
+++
100%
Leumi Overseas Trust Corporation Limited
100%
*
Bank Leumi (Jersey) Limited holds 100% of the share capital of Leumi Overseas Trust Corporation Limited.
++
Book value of the investment in Leumi ABL Limited and Bank Leumi (Jersey) Limited. are £160,000 and £11,209,288 respectively.
+++
Leumi Overseas Trust Corporation Limited holds 100% of the share capital of Apak Offshore Limited, Stanhope Gate Nominees Limited and 27 Hill Street
Nominees Limited.
17. Tangible Fixed Assets
Leases of
less than
50 years
unexpired
£000’s
Computer
and other
equipment
£000’s
Total
£000’s
2,035
391
69
6,706
(391)
1,289
8,741
–
1,358
----------------------
----------------------
----------------------
2,495
7,604
10,099
----------------------
----------------------
----------------------
601
39
131
4,282
(144)
1,097
4,883
(105)
1,228
----------------------
----------------------
----------------------
771
5,235
6,006
----------------------
----------------------
----------------------
Group:
Cost
At 1 January 2006
Reclassification
Additions
At 31 December 2006
Accumulated depreciation and amortisation
At 1 January 2006
Reclassification
Charge for the year
At 31 December 2006
Net book value at
31 December 2006
Net book value at
31 December 2005
1,724
2,369
4,093
----------------------
----------------------
----------------------
1,434
2,424
3,858
----------------------
----------------------
----------------------
23
17. Tangible Fixed Assets continued
Leases of
less than
50 years
unexpired
£000’s
Computer
and other
equipment
£000’s
Total
£000’s
1,997
391
48
6,269
(391)
1,063
8,266
1,111
----------------------
----------------------
----------------------
2,436
6,941
9,377
----------------------
----------------------
----------------------
594
39
122
4,206
(144)
958
4,800
(105)
1,080
----------------------
----------------------
----------------------
755
5,020
5,775
----------------------
----------------------
----------------------
Bank:
Cost
At 1 January 2006
Reclassification
Additions
At 31 December 2006
Accumulated depreciation and amortisation
At 1 January 2006
Reclassification
Charge for the year
At 31 December 2006
Net book value at
31 December 2006
1,681
1,921
3,602
----------------------
----------------------
----------------------
Net book value at
31 December 2005
1,403
2,063
3,466
----------------------
----------------------
----------------------
The above leasehold properties are occupied by the Bank for its operations.
18. Other Assets
Group
Assets awaiting settlement
Deferred taxation*
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
4,783
981
1,333
543
1,192
780
817
496
----------------------
----------------------
----------------------
----------------------
5,764
1,876
1,972
1,313
----------------------
----------------------
----------------------
----------------------
*Deferred Taxation
Timing Differences
At 1 January brought forward
-Capital Allowances
-General Provision
-Empty Premises
LOTC losses brought forward
Deferred Tax Asset brought forward
Deferred Taxation on implementation of FRS26
General Provision
IBNR
EIR
Deferred Income
Available for sale
Deferred tax asset brought forward as
at 1 January after implementing FRS26
Credit / (Charge) to profit (Note 7)
24
Bank
Group
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
(370)
810
56
47
(364)
810
66
–
(370)
810
56
–
(364)
810
66
–
----------------------
----------------------
----------------------
----------------------
543
512
496
512
(810)
900
373
105
(23)
–
–
–
–
–
(810)
900
373
105
(37)
–
–
–
–
–
----------------------
----------------------
----------------------
----------------------
1,088
512
1,027
512
(107)
31
(247)
(16)
18. Other Assets continued
Group
Timing Differences
At 31 December carried forward
-Capital Allowances
-Empty Premises Provision
-LABL & LOTC losses brought forward
IBNR
EIR
Available for sale
Deferred Tax Asset carried forward
Deferred Tax Liability on Pension Surplus
At 1 January brought forward
Credit / (Charge) to Statement of Recognised Gains & Losses
At 31 December carried forward (note 29)
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
(378)
45
188
810
336
(20)
(370)
56
47
810
–
–
(378)
45
–
810
336
(33)
(370)
56
–
810
–
–
----------------------
----------------------
----------------------
----------------------
981
543
780
496
----------------------
----------------------
----------------------
----------------------
(511)
(553)
(511)
(553)
(133)
42
(133)
42
----------------------
----------------------
----------------------
----------------------
(644)
(511)
(644)
(511)
----------------------
----------------------
----------------------
----------------------
Comparative information for other assets has been reclassified to achieve consistency in disclosure with current financial year’s
amounts and other disclosures.
19. Deposits by Banks
Group
Repayable on demand
With agreed maturity dates or periods
of notice, by remaining maturity:
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
21,042
1,455
21,042
1,455
–
6,675
67,809
–
850
51,554
–
6,675
67,809
–
850
51,554
----------------------
----------------------
----------------------
----------------------
95,526
53,859
95,526
53,859
----------------------
----------------------
----------------------
----------------------
Includes intra-group deposits for both Bank and Group of £62,258,000 (2005:£23,868,000)
20. Customer Deposits
Group
Repayable on demand
With agreed maturity dates or periods
of notice, by remaining maturity:
Amounts include:
Due to subsidiary undertakings
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
261,206
122,479
257,822
117,560
4,981
75,552
701,799
4,070
44,855
736,967
4,794
75,322
622,245
4,070
44,338
672,306
----------------------
----------------------
----------------------
----------------------
1,043,538
908,371
960,183
838,274
----------------------
----------------------
----------------------
----------------------
106,485
123,609
---------------------
----------------------
Includes intra-group customer deposits for the Bank of £10,839,000 and the Group of £17,936,000 (2005: Bank and Group
£15,201,000)
25
21.Other Liabilities
(a)
Group
Taxation
Social Security payments
Liabilities awaiting settlement
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
3,432
113
1,052
2,456
80
2,224
3,060
86
509
2,275
80
1,795
----------------------
----------------------
----------------------
----------------------
4,597
4,680
3,655
4,070
Comparative information for other liabilities has been reclassified to achieve consistency in disclosure with current financial year’s amounts
and other disclosures.
(b) Provision for liabilities and charges
Group
Empty property provision
Bank
2006
£000’s
149
2005
£000’s
187
2006
£000’s
149
2005
£000’s
187
----------------------
----------------------
----------------------
----------------------
22. Subordinated Liabilities – Group and Bank
2006
£000’s
Loan note 1
Loan note 2
Loan note 3
3,580
1,250
30,659
Rate of
Interest
2005
£000’s
Rate of
Interest
6.180%
6.055%
5.914%
3,580
1,249
–
5.335%
5.210%
–
----------------------
----------------------
35,489
4,829
----------------------
----------------------
The subordinated sterling loan notes, all of which are issued to the parent company are callable with a notice period of five years and one
day. They can be called at the next interest payment date, the rates of interest are fixed at six monthly intervals and after notice is given
the redemption will take place following the expiration of five years and one day.
The rights of the subordinated loan holders are subordinated to the claims of all other creditors of the Bank.
23. Share Capital
Group
2006
£000’s
Bank
2005
£000’s
2006
£000’s
2005
£000’s
Equity Share Capital
Authorised share capital: Ord. shares of £1
Issued share capital: Ord. shares £1 fully paid
26
20,000
20,000
20,000
20,000
----------------------
----------------------
----------------------
----------------------
9,884
9,884
9,884
9,884
----------------------
----------------------
----------------------
----------------------
24. Reconciliation of Movements in Shareholders’ Funds
Group
At the beginning of the year as reported
Effects of changes in accounting policy (note 2)
As at 1 January 2006 (as restated)
Profit for the year
Actuarial gain for the year
Deferred tax relating to pension asset
Dividend paid (relating to year 2005)
Dividend paid (restructure capital note)
Fair value adjustment
At the end of the year
Share
captial
2006
£000’s
Share
Premium
account
2006
£000’s
Profit and
loss
account
2006
£000’s
Available
for sale
reserve
2006
£000’s
Total
2006
£000’s
9,884
–
18,176
–
88,954
(1,325)
–
33
117,014
(1,292)
----------------------
----------------------
----------------------
----------------------
----------------------
9,884
–
–
–
–
–
–
18,176
–
–
–
–
–
–
87,629
12,628
333
(133)
(6,918)
(30,639)
–
33
–
–
–
–
–
(219)
115,722
12,628
333
(133)
(6,918)
(30,639)
(219)
----------------------
----------------------
----------------------
----------------------
----------------------
9,884
18,176
62,900
(186)
90,774
----------------------
----------------------
----------------------
----------------------
----------------------
Share
captial
2006
£000’s
Share
Premium
account
2006
£000’s
Profit and
loss
account
2006
£000’s
Available
for sale
reserve
2006
£000’s
Total
2006
£000’s
9,884
–
18,176
–
85,932
(1,325)
–
87
113,992
(1,238)
----------------------
----------------------
----------------------
----------------------
----------------------
9,884
–
–
–
–
–
–
18,176
–
–
–
–
–
–
84,607
11,994
333
(133)
(6,918)
(30,639)
–
87
–
–
–
–
–
(301)
112,754
11,994
333
(133)
(6,918)
(30,639)
(301)
----------------------
----------------------
----------------------
----------------------
----------------------
9,884
18,176
59,244
(214)
87,090
----------------------
----------------------
----------------------
----------------------
----------------------
Bank
Profit for the year
Actuarial gain for the year
Deferred tax relating to pension asset
Dividend paid (relating to year 2005)
Dividend paid (restructure capital note)
Fair value adjustment
Group
Profit for the year
Actuarial Loss for the year
Deferred tax relating to pension surplus
Dividend Paid
Bank
Share
Capital
2005
£000’s
Share
Premium
Account
2005
£000’s
Profit and
loss
Account
2005
£000’s
Share
Capital
2005
£000’s
Share
Premium
Account
2005
£000’s
Profit and
loss
Account
2005
£000’s
9,884
-
18,176
-
82,963
10,756
(261)
42
(4,546)
9,884
-
18,176
-
80,695
10,002
(261)
42
(4,546)
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
9,884
18,176
88,954
9,884
18,176
85,932
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
27
25. Available for Sale Reserve
As at 1 January 2006
Increase / (Decrease) in fair value of available for sales assets
Decrease in fair value of available for sales assets
As at 31 December 2006
Group
2006
£000’s
Bank
2006
£000’s
–
33
–
–
87
–
----------------------
----------------------
33
87
----------------------
-----------------------
(219)
(301)
----------------------
----------------------
(186)
(214)
----------------------
----------------------
26. Memorandum Items
The table below gives, for the Group, 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
2006
Contract
amount
£000’s
Credit
equivalent
amount
£000’s
5,274
53,430
4,349
19,441
Risk
weight
%
Risk
weighted
amount
£000’s
100%
100%
4,349
19,441
Contract
amount
£000’s
2005
Credit
equivalent
amount
£000’s
Risk
weighted
amount
£000’s
5,635
34,499
4,545
21,626
4,545
21,626
63,327
55,317
20%
11,063
25,772
22,292
4,458
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
122,031
79,107
34,853
65,906
48,463
30,629
291,215
–
–
270,315
–
–
Contract
amount
£000’s
2005
Credit
equivalent
amount
£000’s
Risk
weighted
amount
£000’s
5,635
34,335
4,710
21,462
4,710
21,462
–
Includes intra-group contingent liabilities of £14,845,000 (2005: £4,558,000).
Bank
Contingent
Liabilities
Acceptances
Guarantees
Documentary credits &
short term trade related
transactions
Commitments
Credit Lines and other
commitments to lend
• less than 1 year
2006
Contract
amount
£000’s
Credit
equivalent
amount
£000’s
Risk
weight
%
Risk
weighted
amount
£000’s
5,274
52,348
4,349
18,359
100%
100%
4,349
18,359
63,327
55,523
20%
11,105
25,772
22,292
4,458
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
120,949
78,231
33,812
65,742
48,464
30,630
256,094
–
–
254,110
–
–
–
Includes intra-group contingent liabilities of £14,222,000 (2005: £4,558,000).
28
27. Other Commitments
Capital expenditure contracted for:
By the Group and Bank
2006
£000’s
2005
£000’s
146
–
Lease Commitments
At year end, annual commitments under non-cancellable operating leases were:
Group
Operating leases which expire
- within 1 year
- 1 to 5 years
- over 5 years
Bank
2006
£000’s
2005
£000’s
2006
£000’s
2005
£000’s
–
924
46
4
699
115
–
894
22
4
671
115
----------------------
----------------------
----------------------
----------------------
970
818
916
790
----------------------
----------------------
----------------------
----------------------
28. 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.
29. 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 £166,500 (2005: £118,000) 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 2005. The
Bank’s ongoing contribution rate is 15.0%.
For the purposes of FRS17 a qualified independent actuary updated the results of the valuation to 31 December 2006 using the Projected
Unit Valuation Method to obtain the figures in this disclosure note.
At 31
December
2006
£000’s
Equities
Bonds
Other (cash)
14,905
9,275
141
---------------------Total market value of assets
Present value of scheme’s liabilities
24,321
(22,173)
---------------------Surplus in the scheme
Related deferred tax liability @ 30% (note 18)
2,148
(644)
---------------------Net Pension asset
1,504
----------------------
Expected
long term
return
7.00%
5.20%
5.00%
At 31
December
2005
£000’s
14,284
8,324
204
Expected
long term
return
7.00%
5.00%
4.75%
---------------------22,812
(21,109)
---------------------1,703
(511)
---------------------1,192
----------------------
29
29. Pension continued
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 2006, using the following assumptions:
Discount rate
Rate of increase in salaries
Rate of revaluation of pensions in deferment
Increases on pensions in payment in respect of service:
Before April 1997
From April 1997 – June 2005
From July 2005
Assumed life expectancy on retirement age 65:
Retiring today
Males
Females
Retiring in 20 years
Males
Females
At 31 December
2006
5.20%
4.50%
3.00%
At 31 December
2005
5.00%
4.25%
2.75%
n/a
3.00%
2.50%
n/a
2.75%
2.25%
At 31 December
2006
At 31 December
2005
20.7 years
23.7 years
20.7 years
23.7 years
21.6 years
24.6 years
21.6 years
24.6 years
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Increasing/decreasing the discount rate by 0.1%, decreases/increases the scheme liabilities by £0.5m.
Increasing/decreasing the inflation rate and salary increase rate by 0.1%, increases/decreases the scheme liabilities by £0.3m.
Increasing life expectancy by allowing for the medium cohort effect, increases the scheme liabilities by £0.6m.
Movement in surplus during the year
Surplus in scheme at start of year
Current service cost
Past service cost
Cash contribution
Other finance income
Actuarial gains/(losses)
Surplus in scheme at year end
Amount charged to Operating Profit
Current Service Cost
Past Service Cost
Total Operating Charge to Administrative Expenses
Amount charged to other finance income
Expected return on assets
Interest on scheme liabilities
Year ended
31 December 2006
£000’s
Year ended
31 December 2005
£000’s
1,703
(447)
(167)
361
365
333
1,844
(362)
(172)
379
275
(261)
----------------------
----------------------
2,148
1,703
447
167
362
172
----------------------
----------------------
614
534
1,426
(1,061)
1,225
(950)
----------------------
----------------------
Net credit to interest income
365
275
Amount recognised in statement of total recognised gains and losses
Actual less expected return on assets
Experience gains on liabilities
Effect of change in assumptions on liabilities
96
234
3
2,547
13
(2,821)
----------------------
----------------------
333
(261)
Actuarial Gain/(Loss) recognised in statement of total
recognised gains and losses
30
29. Pension continued
History of experience gains and losses
Difference between expected and actual
returns on scheme assets:
amount
Percentage of pension assets at year end
Year ended
31 December 2006
£000’s
Year ended
31 December 2005
£000’s
(£000’s)
96
–
2,547
11%
(£000’s)
234
1%
13
–
(£000’s)
333
2%
(261)
1%
Experience gains on scheme liabilities:
amount
Percentage of pension liabilities at year end
Total gain/(loss) recognised in statement of
total recognised gains and losses:
amount
Percentage of pension liabilities at year end
30. Financial Instruments
General
industry segment that represents a concentration in the Bank’s
portfolio, could result in losses that are different from those provided for
at the balance sheet date. Management therefore carefully manages its
exposure to credit risk.
Banking
Lending, deposit taking and issuing of
guarantees to third parties and activities in
trade finance.
Investments
Purchasing of debt securities.
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.
Trading
In derivatives.
Internal credit ratings and credit grades are used in the evaluation of
credit risk.
The Bank’s main activities are:
Financial instruments, which comprise loans and deposits, debt
securities, spot foreign exchange contracts and derivatives are used to
reduce risks arising from the Bank’s main activities.
Derivatives with customers are traded 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.
Impairment allowances are provided for losses that have been incurred
at the balance sheet date.
Significant changes in the economy, or in the health of a particular
(a) Derivatives
The Bank maintains strict controls on net open derivative positions by
both amount and term. At any one time, the amount subject to credit
risk is limited to the current fair value of instruments that are favourable
to the Bank, which in relation to derivatives is only a small fraction of the
notional values of the contract. This credit risk exposure is managed as
part of the overall lending limits with customers, together with potential
exposures from market movements.
(b) Credit-related commitments
The primary purpose of these instruments is to ensure that funds are
available to a customer as required. Guarantees and standby letters of
credit, which represent irrevocable assurances that the Bank will make
payments in the event that a customer cannot meet its obligations to
third parties, carry the same credit risk as loans. Documentary and
commercial letters of credit, which are written undertakings by the Bank
on behalf of a customer authorising a third party to draw drafts on the
Bank up to a stipulated amount under specific terms and conditions,
are collateralised by the underlying shipment of goods to which they
relate and therefore carry less risk than a direct borrowing.
With respect to credit risk on commitments to extend credit, the Bank
is potentially exposed to loss for an amount equal to the total unused
commitments. However, the likely amount of loss is less than the total
unused commitments, as most commitments to extend credit are
contingent upon customers maintaining specific credit standards.
(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.
31
bands of 0 to 8 days and 8 days to 1 month. As at 31 December 2006
the ratios for the above bands were +8% and -2% respectively
compared with limits of 0% and -5%. As at 31 December 2005 the
ratios for the above bands were +7% and +3% respectively compared
with limits of 0% and -5%.
30. Financial Instruments continued
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.
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.
(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 Bank’s general policy in relation to interest rate risk is to impose
strict limits on re-pricing mismatches which will reduce possible losses.
The Market Risk Management Committee (MRMC) is responsible for
market risk. The Senior Treasury Manager and Treasury Manager are
responsible for the day to day management of market risk which
includes liquidity risk, interest rate risk and exchange rate risk.
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 major currencies.
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.
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 table below
summarises the Bank’s exposure to interest rate risk. Included in the
table are the Bank’s assets and liabilities at carrying amounts,
categorised by the earlier of contractual re-pricing or maturity dates.
The Bank’s general policies related to liquidity risk are to hold sufficient
cash and marketable assets to match future cash flows 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
Interest Rate Re-pricing
2006
Assets
Cash and balances
at central banks
Loans and advances
to banks
Loans and advances
to customers
Debt securities
Other assets
Prepayments and
accrued income
Pension asset
Total assets
Less than
3 months
3-6
months
6-12
months
1-5
years
Over 5
years
Non
interest
bearing
Total
–
–
–
–
–
2
2
315,401
304
–
–
–
–
315,705
684,979
129,619
–
–
–
–
92,432
11,166
–
–
457
–
2,686
7,801
–
–
49
–
7,508
7,246
–
–
11
–
–
–
–
–
–
–
–
–
614
4,093
3,540
5,764
787,605
155,832
614
4,093
4,057
5,764
–
–
–
–
–
–
–
–
–
–
1,461
1,504
1,461
1,504
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
1,129,999
104,359
10,536
14,765
–
16,978
1,276,637
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
3,334
18,284
74
–
3,338
57,905
11
–
–
240
431
–
–
–
–
–
–
–
3,540
4,597
95,526
1,043,538
4,087
4,597
Liabilities
Deposits by banks
88,854
Customers deposits
967,109
31
Other liabilities
–
Accruals and deferred
income
–
Provision for liabilities
and charges
–
Subordinated liabilities
–
–
–
–
–
–
2,477
2,477
–
35,489
–
–
–
–
–
–
–
–
–
–
149
–
90,774
149
35,489
90,774
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
1,055,994
57,181
61,254
671
–
101,537
1,276,637
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
Total liabilities
Interest rate
Sensitivity gap
Cumulative gap
32
74,005
47,178
(50,718)
14,094
–
(84,559)
----------------------
----------------------
----------------------
----------------------
----------------------
----------------------
74,005
121,183
70,465
84,559
84,559
–
Interest Rate Re-pricing
2005
Assets
Cash and balances
at central banks
Loans and advances
to banks
Loans and advances
to customers
Debt securities
Other assets
Prepayments and accrued income
Pension asset
Less than
3 months
3-6
months
6-12
months
1-5
years
Over 5
years
Non
interest
bearing
Trading
Book
Total
–
–
–
–
–
–
2
2
162,666
1,582
–
–
–
–
–
164,248
605,595
174,674
–
–
–
–
–
–
61,837
3,703
–
–
–
–
–
–
5,652
3,735
–
–
–
–
–
–
7,042
22,005
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
771
3,858
–
1,876
1,445
1,192
–
33,124
–
–
1,922
–
–
–
680,126
237,241
771
3,858
1,922
1,876
1,445
1,192
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------Total Assets
942,935
67,122
9,387
29,047
–
9,144
35,046 1,092,681
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------Liabilities
Deposits by banks
Customers deposits
Other liabilities
Accruals and deferred income
Provision for liabilities and charges
Subordinated liabilities
53,009
863,162
–
–
–
–
–
–
704
40,275
–
–
–
–
4,829
–
146
4,579
–
–
–
–
–
–
–
355
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,680
1,819
187
–
117,014
–
–
1,922
–
–
–
–
–
53,859
908,371
1,922
4,680
1,819
187
4,829
117,014
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------Total Liabilities
916,171
45,808
4,725
355
–
123,700
1,922 1,092,681
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------Off balance sheet items
33,522
(11,623)
–
(21,899)
–
–
–
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------Interest rate sensitivity gap
60,286
9,691
4,662
6,793
–
(114,556)
33,124
------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------- ------------------Cumulative gap
60,286
69,977
74,639
81,432
81,432
(33,124)
–
Comparative information, above, has been reclassified to achieve consistency in disclosure with current financial year’s amounts and other
disclosures.
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 repricing periods and among currencies.
(2005: £456,700).
The following table provides detail of the weighted average effective
interest rates applicable for interest bearing assets and liabilities of the
Group:
Overall responsibility to manage foreign exchange risk lies with the
Senior Treasury Manager. Finance Department monitor foreign
exchange positions daily and report to Executive Management.
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
£3,000,000 (£2,000,000 for total net open position over a weekend).
Rate of Income/Expense
Interest Bearing Financial Assets
Cash, Loans and Advances to Banks
Loans and Advances to Customers
Debt Securities
Overall foreign exchange open positions are very low and represent
minimal risk.
4.84%
6.82%
4.87%
As at 31 December 2006 the total open positions were £1,311,000
(2005: £667,000) of which £1,133,000 (2005: £507,000) was a long
position and £178,000 (2005: £160,000) was a short position giving
a net long open position of £955,000 (2005: £347,000).
Interest Bearing Financial Liabilities
Deposits By Banks
Customer Accounts
Subordinated Loan
4.68%
4.29%
5.42%
Out of the total net position the Sterling equivalent of the US Dollar
open position was £718,000 (2005: £304,000).
Assuming the financial assets and liabilities at 31 December 2006 were
to remain until maturity or settlement without any action by the Bank
to alter the resulting interest rate risk exposure, an immediate and
sustained increase of 1% in market rates across all maturities would
reduce net income for the following year by approximately £197,000
Fair Values of financial assets and liabilities
Floating rate loans and deposits fair value approximates to amortised
cost carrying value. Fixed rate loans and deposits fair value is calculated
based on discounting expected cash flows using current market interest
rates and approximates to amortised cost carrying value.
33
Derivative Financial Instruments and Trading Liabilities
The Bank holds derivatives for both hedging and non-hedging purposes.
The derivatives held for hedging purposes are economic hedges which
do not meet the requirements for hedge accounting.
Foreign currency forwards represent commitments to purchase
foreign and domestic currency.
Forward rate agreements are individually negotiated interest rate
futures that call for a cash settlement at a future date for the
difference between a contracted rate of interest and the current
market rate, based on a notional principal amount.
Currency and interest rate swaps are commitments to exchange one
set of cash flows for another. Swaps result in an economic exchange
of currencies, or interest rates or a combination of both of these. No
exchange of principal takes place, except for certain currency swaps.
The Bank’s credit risk represents the potential cost to replace the
swap contracts if counterparties fail to perform their obligation. The
risk is monitored on an ongoing basis with reference to the current
fair value, a proportion of the notional amount of the contracts and
the liquidity of the market.
Foreign currency and other OTC options are contractual
agreements under which the seller grants the purchaser the right,
but not the obligation, either to buy or sell at or by a set date or
during a set period, a specific amount of a foreign currency or a
financial instrument at a predetermined price. Options may be either
exchange-traded or negotiated between the Bank and a customer.
The Bank is exposed to credit risk on purchased options only, and
only to the extent of their carrying amount, which is their fair value.
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 at the balance sheet date.
This equates to a replacement cost.
At 31 December 2006 the notional principal amounts and fair values of derivative instruments entered into with third parties were as follows:
Exchange Rate Contracts
FX options
Other OTC options
FX forwards
Total Exchange Rate Contracts
Interest rate contracts
Interest rate swaps
Cross currency interest rate swaps
Forward rate agreements
Total Interest Rate Contracts
Total Derivative Contracts
Notional
Principal
2006
£000’s
Year end positive
fair values
2006
£000’s
Year end negative
fair values
2006
£000’s
88,268
935
375,167
2,147
27
1,366
2,147
27
1,366
----------------------
----------------------
----------------------
464,370
3,540
3,540
73,229
2,314
22,172
517
–
–
532
4
11
----------------------
----------------------
----------------------
97,715
517
547
----------------------
----------------------
----------------------
562,085
4,057
4,087
----------------------
----------------------
----------------------
Includes notional amounts of intra-group FX forwards for both Bank and Group of £2,299,000 (2005: £300,000)
At 31 December 2005 the notional principal amounts and fair values of trading and non-trading instruments entered into with third parties were as follows:
Trading
Exchange Rate Contracts
FX options
FX forwards
Notional
Principal
2005
£000’s
Year end
positive fair
values
2005
£000’s
Year enbd
positive
book values
2005
£000’s
Year end
negative fair
values
2005
£000’s
Year end
negative
book values
2005
£000’s
98,516
188,706
1,124
798
–
–
1,124
798
–
–
----------------------
----------------------
----------------------
----------------------
----------------------
287,222
1,922
–
1,922
–
----------------------
----------------------
----------------------
----------------------
----------------------
72,317
11,623
1,173
–
396
–
749
2
–
–
----------------------
----------------------
----------------------
----------------------
----------------------
83,940
1,173
396
751
–
----------------------
----------------------
----------------------
----------------------
----------------------
Non Trading
Interest Rate Contracts
Interest rate swaps
Forward rate agreements
34
Disclosures for 2005 required under FRS 13
The following disclosures are made for 2005 only, in accordance with FRS 13.
Maturity analysis of derivatives (applicable for 2005 only)
At 31 December 2005 the notional principal amounts and replacement cost, by residual maturity, of the Bank’s trading and non-trading derivatives
were as follows:
One year or less
2005
£000’s
One to five years
2005
£000’s
286,368
1,918
854
4
287,222
1,922
34,056
–
38,261
1,173
72,317
1,173
Exchange rate contracts
Notional principal
Replacement cost
Notional principal
Replacement cost
Counterparty risk analysis (applicable for 2005 only)
The total of positive and negative fair values arising on financial
derivatives at the balance sheet date have been netted where the Bank
has a legal right to 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 2005 the net replacement costs by counterparty of
the Bank’s trading financial derivatives were nil.
Total
2005
£000’s
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 2005 the potential credit risk exposures in respect of
the Bank’s financial derivatives equal the net replacement cost as
specified in the fair values table.
Gains and Losses (applicable for 2005 only)
The net gain from trading in financial assets and financial liabilities shown
in the profit and loss account for the year ended 31 December 2005
includes interest receivable from loans and advances to banks and
customers of £45.1 million and interest payable on deposits by banks
and customer accounts of £34.5 million.
Profits from financial instruments can be analysed as follows:
Trading
Profits
£m
Net ineterest
income and
other income
£m
Dealing
Profits
£m
Total
£m
–
–
(0.4)
–
–
–
6.9
–
2.2
–
–
–
2.2
–
6.5
–
----------------------
----------------------
----------------------
----------------------
(0.4)
6.9
2.2
8.7
----------------------
----------------------
----------------------
----------------------
2005
Foreign exchange contracts
Debt securities
Equities and other trading
Hedging (applicable for 2005 only)
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 nontrading derivatives are terminated prior to the end of the life of the asset,
liability, position or cash flow 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 summarises the unrecognised gains and losses on
financial derivatives used for hedging purposes as at 31 December 2005
and the movement therein during the year.
35
2005
Unrecognised gains & losses on hedges as at 1 January 2005
Of which recognised in the year to 31 December 2005
Gains
£000’s
Losses
£000’s
Total net
Gains/
(losses)
£000’s
1
1,699
(1,698)
----------------------------------------------------------------------------------------------------------------------Gains and losses arising before 1 January 2005 not recognised
in the year to 31 December 2005
Gains and losses arising in the year to 31 December 2005
not recognised in that year
Unrecognised gains and losses on hedges at 31 December 2005
Of which expected to be recognised in the year to
31 December 2006
(1)
(751)
750
–
948
(948)
----------------------
----------------------
----------------------
1,173
(197)
1,368
----------------------
----------------------
----------------------
303
389
(86)
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 2005.
31. Ultimate Parent Company
The Bank is a subsidiary undertaking of Bank Leumi le-Israel B.M., which is incorporated in Israel.
The largest and smallest group in which they are consolidated is that headed by Bank Leumi le-Israel B.M. The consolidated accounts of this group
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.
32. Post Balance Sheet Events
The proposed dividend for 2006 is £6,300,000 or 50% of the Bank’s post-tax profit equating to 64 pence per share (2005: 70 pence) to be paid
on 9 May 2007.
36
Independent auditors’ report to the
members of Bank Leumi (UK) plc
We have audited the group and Bank's financial statements (the ‘‘financial
statements’’) of Bank Leumi (UK) plc for the year ended 31 December
2006 which comprise the Consolidated Profit and Loss Account, the
Consolidated and Company Balance Sheets, the Consolidated
Statement of Total Recognised Gains and Losses and the related notes.
These financial statements have been prepared under the accounting
policies set out therein.
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.
Basis of audit opinion
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) 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 and Bank’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.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Directors’ Report and the
financial statements in accordance with applicable law and UK
Accounting Standards (UK Generally Accepted Accounting Practice) are
set out in the Statement of Directors’ Responsibilities on page 9.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards
on Auditing (UK and Ireland).
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 whether in our opinion the
information given in the Directors’ Report is consistent with the financial
statements.
In addition we report to you if, in our opinion, 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 other transactions is not
disclosed.
We read the Directors’ Report and consider the implications for our report
if we become aware of any apparent misstatements within it.
Opinion
In our opinion:
•
the financial statements give a true and fair view, in accordance with
UK Generally Accepted Accounting Practice, of the state of the
group’s and the Bank’s affairs as at 31 December 2006 and of the
group’s profit for the year then ended;
•
the financial statements have been properly prepared in accordance
with the Companies Act 1985; and
•
the information given in the Directors’ Report is consistent with the
financial statements.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London
26 February 2007
37
Notice to Shareholders of
Annual General Meeting
Notice is hereby given that the Forty Seventh Annual General Meeting of the Company will be held at 20, Stratford Place, London
W1C 1BG on 30 April 2007 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 2006
and the report of the Auditors thereon.
2. To re-elect Directors.
The Directors retiring in rotation in accordance with the Company’s Articles are Sir B. Schreier, Mr. R. Glatter and Mr. S. R.
Ramseyer.
Sir B. Schreier, Mr. R. Glatter and Mr. S. R. Ramseyer all of whom are eligible, offer themselves for re-election.
Special notice has been given that Sir B. Schreier who attained the age of 70 on 28 March 1988 is offering himself for reelection.
Special notice has been given that Mr. R. Glatter and Mr. S. R. Ramseyer, who will attain the age of 70 on 14 and 25 March 2007,
respectively, are offering 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 approve the payment of a proposed final dividend of 64 pence per share payable on 9 May 2007.
By Order of the Board
Naomi Hillel
Company Secretary
26 February 2007
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, Proxy Processing Centre, Telford
House, Bicester OX26 4LD to arrive not later than 48 hours before the time appointed for the holding of the General Meeting.
38
The Israeli Economy in 2006
Economic growth
Capital flows
The past year was characterised by a high flow of investments into the
country from overseas. Particularly notable were the direct investments
made by foreigners, which reached in 2006 an average of US$1,099
million per month. The largest of these acquisitions was the purchase
of the Israeli company "Iscar" by American businessman Warren Buffet
in the beginning of May for a total of US$4bn. There were also tens of
strategic acquisitions by a variety of investors in the high-tech sector,
investments in the area of financial services, real estate investments,
and more.
Fiscal Policy
The fiscal restraint implemented by the government over recent years
has contributed to a continuing decline in the ratio of government debt
to GDP, which is currently at 86%, and to an improvement in Israel's risk
level, as reflected in the yield spreads between US dollar bonds issued
by the State of Israel and those issued by other countries. The
government deficit amounted to a low level of only 0.9% of GDP, as a
result of a sharp increase in tax revenues.
�e exchange rate, inflation and
monetary policy
The improvement in the state of the Israeli economy, the flow of
investments from overseas, and the weakness of the US dollar in global
markets over the course of the past year, have all contributed to a
significant strengthening of the exchange rate of the shekel vis-à-vis the
dollar during 2006.
Over 2006, the CPI declined by 0.1%, well below the lower limit of the
inflation target range of 1–3%. The Bank of Israel lowered the interest
rate in late December 2006 to 4.5%. This step was intended to facilitate
the return of the rate of inflation back into the price stability target range.
Performance of Tel-Aviv Stock
Exchange traded shares
The activity in the local stock market during 2006 reflected the strength
of the Israeli economy. The General Share Index registered a gain of
5.9% during 2006, following a gain of 33% in 2005. Increases of 12.5%
were recorded in the TA-25 index of blue chip shares and 12.0% in the
TA-100 index of most actively traded shares.
The sharp declines in emerging stock markets in May and June impacted
the Tel Aviv Stock Exchange to a lesser degree than that seen in other
developing countries. For example, during the second half of May and
the first half of June the Indian stock market plummeted 30%, the equity
markets in Thailand and South Korea fell 18%, and the equity markets
in Eastern Europe registered price declines of 24% on average.
Meanwhile, the leading share indices in Israel, the TA-25 and the TA-75,
fell during the same period by only 8% and 14%, respectively.
This show of resilience by the Israeli stock market is attributed to the
strong confidence that foreign investors have in the Israeli economy,
stemming from, among other things, positive macro-economic data
published throughout the year. It is important to note that this
confidence was demonstrated throughout the entire year, among other
things, also through the many strategic real acquisitions made by foreign
investors in Israel.
A breakdown of the local stock market by sector shows that the
weakest sectors during 2006 included the chemicals, rubber, and plastics
sector, which lost 19.4% of its value during the year, and the technology
sector, which fell 1.4%. The banking sector as well displayed relative
weakness throughout the year, as the index of banking shares showed
a moderate gain of only 4.8%, following an upward spike of more than
50% in 2005. In contrast, the real estate sector showed impressive
growth in 2006, with the index of real estate shares gaining 63.0%.
The relative weakness seen in the banking shares was apparently
attributed to, among other things, the Bachar Committee reforms, which
forced the banks to sell off their mutual and provident funds. The main
purchasers of the provident and mutual funds were the insurance
companies. The insurance sector share index on the local market
increased 11.8% in 2006.
�e sovereign credit rating
The Fitch international credit rating agency announced on December
18th that it was changing its outlook on the State of Israel's foreign and
local currency Issuer Default Rating ("IDR") to Positive from Stable, while
confirming its current rating on the country of A minus. According to the
announcement, this step is attributed to the degree of economic
resilience demonstrated by the Israeli economy, as seen by the fact that
there was only limited impact of the fighting in Lebanon over the summer
on the Israeli economy, and also due to positive indicators seen in Israel's
foreign accounts. In the first half of 2006 Moody's international credit
rating agency also raised its credit rating outlook on Israel.
39
For further information on Bank Leumi (UK) plc
Banking and Financial Services
please contact:
Private Banking &
Treasury
Foreign Exchange &
Treasury Products
Martin Leslie
020 7907 8142
Leah Excell
020 7907 8147
Private Banking
Moshe Langerman
020 7907 8031
Executive Mortgage
Finance
Carol Taylor
020 7907 8040
Tim Pereira
020 7907 8088
Dr �omas Walford
020 7907 8198
Commercial &
Corporate Banking
Commercial Banking
& Media Finance
Robert Sherr
020 7907 8169
Israel Related Business
Shaul Shneider
020 7907 8182
Property Finance
David Griffiths
020 7907 8116
Charged Securities
Malcolm Bloom
020 7907 8184
Manchester Office
Jonathan Ragol-Levy
020 7907 8197
Patricia Broadley
0161 819 4277
Commodities Finance
Richard Starsmeare
020 7907 8046
Finance &
Operations
Finance & Control
Clayton Planner
020 7907 8123
International Banking
Services
International Trade
Services
Barbara Chapman
020 7907 8193
Cyril Eden
020 7907 8189
Human Resources
John Edwards
020 7907 8039
Operations & IT Services
Nigel Brigden
020 7907 8171
Lin Walling
020 7907 8160
Alan Morhaim
020 7907 8006
Leumi ABL Limited
Paul Hird
Chief Executive
01273 716 201
Phil Woodward
Managing Director
01273 716 202
Offshore Business
Richard Guillaume
Managing Director
01534 702 500
John Germain
Director Trust Services
01534 702 530
David Cooper
Director Banking Services
01534 702 575
Christopher Lees
Director Trust Services
01534 702 508
Bank Leumi (Jersey)
Limited and Leumi
Overseas Trust
Corporation Limited
40
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 1872
Bank Leumi le-Israel has 235 branches
Leumi Global Private Banking Division
Tel Aviv
35 Yehuda Halevi Street, Tel Aviv 65546
Telephone 972 3 514 7717
Facsimile 972 3 514 9602
Leumi & Co. Investment House Limited
25 Kalisher Street, Tel Aviv 65165
Telephone 972 3 514 1212
Facsimile 972 3 514 1275
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
Website
www.bankleumi.co.uk
Northern Office
Blackfriars House, Parsonage
Manchester M3 2JA
Telephone 44 (0) 161 832 8995
Facsimile 44 (0) 161 833 3627
LUXEMBOURG
Bank Leumi (Luxembourg) S.A.
6D, Route de Treves
L-2633 Senningerberg, Luxembourg
Telephone 35 2 346 390
Facsimile 35 2 346 396
Website
www.leumi.lu
ROMANIA
Bank Leumi Romania S.A.
Bulevardul Aviatorilor, Nr.45, International Business Center,
Bucuresti, Sector 1
Telephone 40 21 206 70 75
Facsimile 40 21 206 70 50
Email
office@leumi.ro
USA
Bank Leumi USA
579 Fifth Avenue, New York, NY 10017
Telephone 1 917 542 2343
Facsimile 1 917 542 2254
Website: www.leumiusa.com
3 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
Leumi ABL Limited
Pacific House, 126 Dyke Road, Hove BN1 3TE
Telephone 01273 716 200
Facsimile 01273 716 210
Illinois
Chicago
100 North LaSalle St, Chicago, IL 60602
Telephone 1 312 781 1800
Facsimile 1 312 781 9469
CHANNEL ISLANDS
Bank Leumi (Jersey) Limited
PO Box 510, 27 Hill Street, St Helier, Jersey JE4 5TR
Telephone 44 (0) 1534 702 525
Facsimile 44 (0) 1534 617 446
Website
www.bankleumi.com
Florida
Miami
800 Brickell Avenue, Suite 1400,
Miami, FL 33131
Telephone 1 305 702 3500
Facsimile 1 305 377 6544
Leumi Overseas Trust Corporation Limited
PO Box 510, 27 Hill Street, St. Helier
Jersey JE4 5TR
Telephone 44 (0) 1534 702 525
Facsimile 44 (0) 1534 702 570
Bank Leumi Group has representative offices in Argentina, Australia,
Brazil, Canada, Chile, France, Germany, Hong Kong, Hungary, Mexico,
Panama, South Africa, Uruguay and Venezuela.
www.bankleumi.com
SWITZERLAND
Bank Leumi le-Israel (Switzerland) Zurich
Claridenstrasse 34, 8022 Zurich
Telephone 41 44 207 9111
Facsimile 41 44 207 9100
Geneva
80 Rue du Rhone, 1211 Geneva 3
Telephone 41 22 318 3555
Facsimile 41 22 310 8318
Website
www.leumi.ch
41
42

Board of Directors Bank Leumi (UK) plc

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