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Thursday, 19 February 2009
Bad Start for Bank Reporting Season in Hong Kong
Bank of East Asia Ltd., the Hong Kong lender that suffered a brief run on deposits in September, had its first loss in at least four decades after writing down the value of credit-market investments.
Bank of East Asia Ltd., the Hong Kong lender that suffered a brief run on deposits in September, had its first loss in at least four decades after writing down the value of credit-market investments.
The HK$855 million ($110 million) deficit for the six months ended Dec. 31, derived by subtracting first-half earnings from full-year numbers reported by the company today, compares with profit of HK$2.26 billion a year earlier.
Chairman David Li said he’ll “fast track” measures to cut costs after expenses rose 23 percent last year and bad-loan charges more than doubled. Bank of East Asia’s shares tumbled 61 percent in the past year, and the September run on the lender spurred Hong Kong’s central bank to guarantee all bank deposits.
“They have never been good at controlling expenses but the 23 percent increase is just way too high,” said Lee Yuk-kei, Hong Kong-based analyst at Core-Pacific Yamaichi International Ltd. “The rise in loan charges is also quite worrying.”
Impairment losses on loans rose to HK$558 million last year from HK$216 million in 2007, pushing total impairment charges to HK$948 million, the bank said. The Hong Kong Monetary Authority last week said banks face a “difficult” year as lending slows and demand for investment products wanes.
“The financial tsunami that swept over the global economy in September 2008 has left a bleak economic outlook in its wake,” Li said in the statement. The effects will be felt “well into 2009,” he said.
‘Extremely Weak’
Bank of East Asia rose 3.6 percent today in local trading before results were announced. The stock is the worst performer on the Hang Seng Finance Index in the past 12 months.
The lender hasn’t posted a loss since at least the 1960s, spokeswoman Vera Lung said today before results were posted, without being more specific. The bank, Hong Kong’s third-largest by market value, booked HK$3.5 billion in charges after selling its holdings of collateralized debt obligations last year.
Li, who represents the banking industry in Hong Kong’s legislature, has informed workers that they will have to take one unpaid day off every month, starting in March, to lower costs, Hong Kong’s Standard newspaper reported on Feb. 13, citing a person it didn’t identify.
“The bank’s profitability is extremely weak,” Morgan Stanley analysts Anil Agarwal and Daniel Shum wrote in a Feb. 13 report. “We expect almost zero profits in 2009.”
Rivals Trim Jobs
Rivals HSBC Holdings Plc and Standard Chartered Plc last year announced job cuts in the city and across the Asia-Pacific region. Banks and brokerages worldwide have shed more than 260,000 positions as the credit crisis that began in 2007 triggered a global recession.
On Oct. 27, Bank of East Asia said it would take a writedown after selling its entire holdings of CDOs at a loss. The profit warning, the first since the lender was incorporated in 1918, sent the stock to a six-year low the following day.
CDOs, which repackage bonds, loans and credit-default swaps and use the income to pay investors, have plunged as lending froze after the collapse of Lehman Brothers Holdings Inc. deepened the credit crisis. Bank of East Asia recorded HK$1.3 billion of CDO writedowns in last year’s first half.
China Expansion
Bank of East Asia, the first foreign lender to issue debit cards in China, had 69 branches there at the end of last year, fewer than the 75 that Li had planned to set up.
The bank, along with HSBC and Standard Chartered, expanded in China in the past two years as the nation’s booming economy drove demand for loans and investment products. Growing profits in China may be more difficult this year. China’s expansion may slow to 6.7 percent this year from 13 percent in 2007 as exports collapse, according to the International Monetary Fund.
The push into China also contributed to rising costs at Bank of East Asia, with total staff expenses rising 21 percent to HK$2.98 billion for the year, according to the statement.
Li said the lender “will maintain an aggressive branch expansion strategy in 2009” for China, and pledged to introduce more products and services for mainland customers.
Li’s Turbulent Year
Today’s report caps a turbulent year for Li, 69. He resigned from Hong Kong’s Executive Council a year ago after agreeing to pay $8.1 million to settle a U.S. probe into alleged insider trading. The U.S. Securities and Exchange Commission was investigating share trading during News Corp.’s takeover of Dow Jones & Co.
At the time of the News Corp. purchase, Li was a Dow Jones director. Li, who agreed to pay the SEC fine without admitting or denying wrongdoing, kept his post on Hong Kong’s Legislative Council, the city’s parliament.
On Sept. 25, hundreds of depositors lined up outside Bank of East Asia outlets in central Hong Kong, some of them to withdraw money, after rumours spread by cell phone questioned the bank’s health. Li rushed back to Hong Kong from the U.S. to reassure clients and investors.
Hong Kong’s government and central bank came to Li’s assistance, denouncing the rumours as unfounded and pumping cash into the banking system. The run fizzled. On Oct. 2, Hong Kong police arrested an 18-year-old man in an investigation into the spreading of rumours on the Web about an unidentified bank.
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Bad Start for Bank Reporting Season in Hong Kong
Bloomberg
17 February 2009
Bank of East Asia Ltd., the Hong Kong lender that suffered a brief run on deposits in September, had its first loss in at least four decades after writing down the value of credit-market investments.
The HK$855 million ($110 million) deficit for the six months ended Dec. 31, derived by subtracting first-half earnings from full-year numbers reported by the company today, compares with profit of HK$2.26 billion a year earlier.
Chairman David Li said he’ll “fast track” measures to cut costs after expenses rose 23 percent last year and bad-loan charges more than doubled. Bank of East Asia’s shares tumbled 61 percent in the past year, and the September run on the lender spurred Hong Kong’s central bank to guarantee all bank deposits.
“They have never been good at controlling expenses but the 23 percent increase is just way too high,” said Lee Yuk-kei, Hong Kong-based analyst at Core-Pacific Yamaichi International Ltd. “The rise in loan charges is also quite worrying.”
Impairment losses on loans rose to HK$558 million last year from HK$216 million in 2007, pushing total impairment charges to HK$948 million, the bank said. The Hong Kong Monetary Authority last week said banks face a “difficult” year as lending slows and demand for investment products wanes.
“The financial tsunami that swept over the global economy in September 2008 has left a bleak economic outlook in its wake,” Li said in the statement. The effects will be felt “well into 2009,” he said.
‘Extremely Weak’
Bank of East Asia rose 3.6 percent today in local trading before results were announced. The stock is the worst performer on the Hang Seng Finance Index in the past 12 months.
The lender hasn’t posted a loss since at least the 1960s, spokeswoman Vera Lung said today before results were posted, without being more specific. The bank, Hong Kong’s third-largest by market value, booked HK$3.5 billion in charges after selling its holdings of collateralized debt obligations last year.
Li, who represents the banking industry in Hong Kong’s legislature, has informed workers that they will have to take one unpaid day off every month, starting in March, to lower costs, Hong Kong’s Standard newspaper reported on Feb. 13, citing a person it didn’t identify.
“The bank’s profitability is extremely weak,” Morgan Stanley analysts Anil Agarwal and Daniel Shum wrote in a Feb. 13 report. “We expect almost zero profits in 2009.”
Rivals Trim Jobs
Rivals HSBC Holdings Plc and Standard Chartered Plc last year announced job cuts in the city and across the Asia-Pacific region. Banks and brokerages worldwide have shed more than 260,000 positions as the credit crisis that began in 2007 triggered a global recession.
On Oct. 27, Bank of East Asia said it would take a writedown after selling its entire holdings of CDOs at a loss. The profit warning, the first since the lender was incorporated in 1918, sent the stock to a six-year low the following day.
CDOs, which repackage bonds, loans and credit-default swaps and use the income to pay investors, have plunged as lending froze after the collapse of Lehman Brothers Holdings Inc. deepened the credit crisis. Bank of East Asia recorded HK$1.3 billion of CDO writedowns in last year’s first half.
China Expansion
Bank of East Asia, the first foreign lender to issue debit cards in China, had 69 branches there at the end of last year, fewer than the 75 that Li had planned to set up.
The bank, along with HSBC and Standard Chartered, expanded in China in the past two years as the nation’s booming economy drove demand for loans and investment products. Growing profits in China may be more difficult this year. China’s expansion may slow to 6.7 percent this year from 13 percent in 2007 as exports collapse, according to the International Monetary Fund.
The push into China also contributed to rising costs at Bank of East Asia, with total staff expenses rising 21 percent to HK$2.98 billion for the year, according to the statement.
Li said the lender “will maintain an aggressive branch expansion strategy in 2009” for China, and pledged to introduce more products and services for mainland customers.
Li’s Turbulent Year
Today’s report caps a turbulent year for Li, 69. He resigned from Hong Kong’s Executive Council a year ago after agreeing to pay $8.1 million to settle a U.S. probe into alleged insider trading. The U.S. Securities and Exchange Commission was investigating share trading during News Corp.’s takeover of Dow Jones & Co.
At the time of the News Corp. purchase, Li was a Dow Jones director. Li, who agreed to pay the SEC fine without admitting or denying wrongdoing, kept his post on Hong Kong’s Legislative Council, the city’s parliament.
On Sept. 25, hundreds of depositors lined up outside Bank of East Asia outlets in central Hong Kong, some of them to withdraw money, after rumours spread by cell phone questioned the bank’s health. Li rushed back to Hong Kong from the U.S. to reassure clients and investors.
Hong Kong’s government and central bank came to Li’s assistance, denouncing the rumours as unfounded and pumping cash into the banking system. The run fizzled. On Oct. 2, Hong Kong police arrested an 18-year-old man in an investigation into the spreading of rumours on the Web about an unidentified bank.
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