Bank Hapoalim B.M.
18 March 2008



Head Office
63 Yehuda Halevi St., Bank Hapoalim Bldg., Tel Aviv 65781
Tel: 972-3-5673800; Fax:  972-3-5674576



                                                  Date: March 13, 2008
                                                  Reference: 802/08

To:     The London Stock Exchange


Dear Sir or Madam,


                            RE:    Immediate Report


Bank Hapoalim B.M. (hereinafter: 'the Bank') respectfully advises, further to
the immediate report which the Bank published on 10th January, 2008,
(2008-01-011316) in connection with the Bank's investments in asset - backed
securities, that:


1.      In the course of the month of March, the Bank received a final draft of
a report from Andrew Davidson & Co., which is one of the leading companies in
the world in the field of analyzing mortgage-backed securities (hereinafter: '
MBS'). At the request of the Bank, the company carried out an assessment of the
credit risk inherent in the MBS portfolio of the Bank backed by domestic
mortgages. According to the forecast of the company as to the decline in housing
prices in the USA and in line with the statistical model for loan defaults that
the company has developed, it is expected that the MBS portfolio of the Bank
will not show any material credit losses. The accumulated loss expectancy that
is forecasted for the portfolio under examination is 20 - 30 million US Dollars
over the life span of the securities. According to the assessment of the
company, the likelihood that the accumulated loss over the life span of the
securities will exceed 30 million US Dollars is about 20%. In the extreme
scenario presented by the company to the Bank, the likelihood that the
accumulated loss over the life span of the securities would exceed 216 million
US Dollars is about 2%. These scenarios are based on the model developed by the
company and given their forecast of housing prices in the United States. A
further elaboration of the report of the external company will be made in the
annual financial statements of the Bank for the year 2007. It should be noted
the company's analysis did not cover the MBS issued by the federal agencies of
the United States government, the MBS guaranteed by the insurance companies or
those based on commercial assets.

Based on the model supplied by the company, the Bank applied an even more severe
scenario in which housing prices in the USA (excluding California and Florida)
fell by about 30% from their peak (by 22% when compared with the present price
level) and in California and Florida by about 40% from their peak (by 28% when
compared with the present price level). Given such an severe scenario and
assuming that the rate of default by mortgage takers will be about 47%, the
accumulated loss from the portfolio is liable to reach about 340 million US
Dollars over the life span of the securities. It should be noted that this test
referred to the same portion of the portfolio that was tested by the company. It
should be noted that the losses calculated in all of the scenarios do not take
into account the annual income (after deducting the cost of financing the
portfolio) which the Bank is expected to record in the future on account of the
MBS portfolio and which is estimated at about 20 million US Dollars per year.
Given the average life span of the securities foreseen at the present time, of
about 7 years, such income is expected to exceed 100 million US Dollars.



2.      The Bank further reports that as at 7th March, 2008, in the light of
developments taking place in the US capital markets in the two weeks preceding
that date and the opening up of credit spreads for all of the investment
products in the USA, including MBS issued by federal agencies of the US
government, there was an additional decline of about 350 million US Dollars in
the market value of the Bank's total investment in MBS in the United States. The
cumulative decline in the market value of these investments amounts in all to
about 500 million US Dollars. The Bank estimates that this decline does not
reflect the economic value of the portfolio, assuming that they continue to be
held over a long term.



3.      As at 7th March, 2008, the sum of the Bank's investments in the MBS
portfolio in the United States amounts to about 3.5 billion US Dollars after
prepayments and sales of MBS amounting to about 140 million US Dollars which
were realized at a loss of about 7 million US Dollars. The portfolio consists of
about 400 million US Dollars of MBS issued by federal agencies of the United
States government, about 200 million US Dollars of MBS backed by mortgages on
commercial property and about 170 million US Dollars guaranteed by insurance
companies. The remainder of the portfolio consists of MBS based on domestic
mortgages that have not been issued by federal agencies of the United States
government. All of the securities in the MBS portfolio of the Bank are rated AAA
by the international rating agencies, except for the following: MBS amounting to
60 million US Dollars (this refers to MBS guaranteed by the insurance company
FGIC) the rating of which has recently been lowered by the international rating
agencies from the level of AAA to A and one MBS amounting to 5 million US
Dollars rated AA which was originally purchased with that rating. In addition,
MBS amounting to 302 million US Dollars rated AAA are on watch lists of the
rating agencies.



4.      The decision of the Bank regarding the classification of the decline in
value of securities is taken in accordance with generally accepted accounting
principles according to American standards. According to these principles, and
after an accounting examination of the subject by KPMG, the Bank estimates that
there is no need for any permanent provision for decline in value on account of
the MBS portfolio. The Bank is examining the implications of the latest
developments in the US capital market on the financial statements.



5.      As of the date hereof the Bank has no information as to any material
changes in the MBS portfolio in London, and the SIV and CDO portfolios held by
the Bank.



6.      The US capital market continues to suffer from great instability due to
the liquidity crisis affecting the financial system and following the
deterioration in the US credit market. The Bank expects that the prices of the
MBS and the other asset-backed financial instruments held by the Bank will
continue to be volatile. Accordingly, such volatility may force the Bank, at
some stage in the life span of the securities, to recognize part of the decline
in market value as being not of a temporary nature in view of generally accepted
accounting principles according to American standards. At the same time, due to
the quality of the credit portfolio as stated in Clause 1, the Bank does not
foresee material credit losses in the long term.



7.      All of the reports and data contained in this immediate report are based
on assessments on the basis of the data presently available to the Bank and they
are un-audited by the external auditors of the Bank.



8.      Please note that this report contains forward-looking information. It
may be that the developments which actually take place may lead to a different
result from the one now expected, including global economic developments,
changes in conditions of the capital markets and the housing market in the
United States and regulatory provisions.



                               Yours faithfully,

                              Bank Hapoalim B.M.

           ( - )                                                ( - )


       Barry Ben-Zeev                                  Dan Koller
Senior Deputy Managing Director               Senior Deputy Managing Director





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