Hong Kong Savers Fret as Bank East Asia Fights Rumors
By Kelvin Wong and Theresa Tang
Sept. 25 (Bloomberg) -- For the first time since the Asian financial crisis more than a decade ago, Hong Kong has faced a bank run.
Hundreds of depositors lined up at the city's third-largest lender Bank of East Asia Ltd. yesterday as the bank hit out at ``malicious rumors,'' and Chairman David Li rushed back to Hong Kong from the U.S. to reassure clients and investors. The city's central bank jumped to BEA's defense and police said they're investigating phone text messages questioning its health.
``The rumors were groundless,'' Li, 69, told reporters at Hong Kong's airport late yesterday. ``The bank has no problem.''
BEA's woes underline how a year of turmoil in financial markets has undermined confidence in the global banking system. Britain's government last year bailed out mortgage lender Northern Rock Plc after a run. The U.S. took over American International Group Inc., the nation's biggest insurer, to prevent the worst financial collapse in American history.
In Singapore, customers thronged outside the offices of AIG's local unit this month to terminate their policies.
BEA gained 3.2 percent in Hong Kong pre-market trading after dropping 6.9 percent yesterday. The 90-year-old lender said its ``exposure'' to bankrupt Lehman Brothers Holdings Inc. and AIG is less than 0.2 percent of assets.
Joseph Yam, chief executive of Hong Kong's central bank, today urged depositors to ``stay calm.'' Under Hong Kong's deposit insurance program, bank depositors are protected up to HK$100,000 in the case of a bank failure.
`Anything Can Happen'
The Hong Kong Monetary Authority injected HK$3.88 billion ($500 million) into the banking system today, after the interbank lending rate surged yesterday.
BEA Executive Director Joseph Pang said at a press briefing in Hong Kong late yesterday that he didn't know where the rumors originated.
As Pang spoke, hundreds of people surrounded the 90-year-old bank's branch at Des Voeux Road in central Hong Kong. Similar crowds also amassed outside a Caine Road outlet, and managers had to turn people away at closing time and ask them to return the next morning.
The lines continued today, with about 70 people queuing outside the Des Voeux office at 9 a.m. One woman brought a chair.
``Anything can happen,'' said 63-year old Li Chun, a retiree. ``I better take out my money first.''
BEA shares closed 6.9 percent lower yesterday after earlier tumbling 11 percent. The stock has dropped 53 percent this year, the worst performance among banks traded in Hong Kong, as losses on mortgage investments swelled.
BEA had HK$396.6 billion of assets as of June 30 and a capital adequacy ratio of 14.6 percent.
``Their exposure should be limited,'' said Mona Chung, a fund manager who helps oversee more than $2 billion at Daiwa Asset Management Ltd. ``The reaction to those rumors seems a bit exaggerated. This is probably a bigger problem in the U.S. than for local banks.''
Today, BEA's Li said he's buying shares in his bank. He added that Li Ka-shing, chairman of Cheung Kong (Holdings) Ltd. and Hong Kong's richest man, also is buying the stock. David Li is BEA's third-biggest shareholder with a 2.8 percent stake, according to data compiled by Bloomberg.
BEA's image was tarnished on Sept. 18 as it reduced first- half profit by HK$109 million because of ``manipulation'' of the valuation on equity derivatives it holds. The restatement prompted Moody's Investors Service and Standard & Poor's to say they may cut BEA's credit ratings.
1997 Bank Run
Hong Kong's last bank run occurred in 1997, when International Bank of Asia suffered depositor withdrawals. On Nov. 11, 1997, the bank's then-Chief Executive Officer Mike Murad declared the run over.
``I am very worried as most of our family's assets are with the bank,'' Annie Poon, 52, said yesterday outside the Des Voeux Road branch. ``My mother has gone to another branch to find out the latest.''
Other banks moved to reassure the public about their finances. DBS Group Holdings Ltd., South East Asia's biggest lender by assets, today said its Hong Kong unit is ``in a strong financial and capital position.''
BEA's Li, a scion of one of Hong Kong's most prominent families, in February quit the city's cabinet after agreeing to pay $8.1 million in fines to the U.S. securities regulator for allegedly tipping off a friend about News Corp.'s takeover of Dow Jones & Co. Li agreed to pay the fine without admitting or denying wrongdoing.