By Jennifer Yousfi
Rumors of a capital crisis due to overexposure to distressed U.S. securities drove shares of a Hong Kong bank sharply lower today (Wednesday), as concerned customers lined up outside retail branches to withdraw deposits.
The Bank of East Asia Ltd. (OTC ADR: BKEAY), commonly referred to as BEA, asked Hong Kong authorities to investigate “malicious rumors” spread mainly via cell phone text messages that called the third-largest Hong Kong lender’s liquidity into question.
“The management of BEA hereby states in the strongest possible terms that such rumors have no basis in fact,” BEA said in an e-mailed statement today. “The bank's financial position is sound and stable.”
Hong Kong-traded shares of BEA dropped 11% to a new 52-week low as investors and retail customers alike lost confidence in the bank. The stock recovered slightly in late afternoon trading to end the day down almost 7% at the Hong Kong close.
“We're a little bit concerned,” Sonny Hsu, a Hong Kong-based analyst at Fitch Ratings Inc. told Bloomberg News. “We'll keep an eye on what's going on. If you just look at the numbers, I think the bank is financially still sound.”
BEA had $51 billion (HK$396.6 billion) in assets as of June 30 and a capital adequacy ratio of 14.6%, according to Bloomberg data.
The rumors stemmed from concern about BEA’s exposure to securities of the now bankrupt U.S. investment bank, Lehman Bros. Holdings Inc. (OTC: LEHMQ), but the Hong Kong bank’s exposure is only $61 million, or less than 0.2% of its total assets.
“The rumors took various forms,” said Bank of East Asia's deputy chief executive, Joseph Pang, at a news conference, The Wall Street Journal reported. “Some said the company's financials were problematic, and others said the government is about to take over our bank. Some others said there is a 10,000 Hong Kong dollars [U.S. $1,282] limit to each withdrawal. All of these are baseless.”
BEA extended retail branch hours to accommodate the influx of worried customers and honored all withdrawals.
Hong Kong’s central back pledged its full support to BEA today, saying it would bolster the bank’s liquidity if needed.
“I can confirm categorically that these rumors are unfounded,” Joseph Yam, chief executive of the Hong Kong Monetary Authority, told the press, Reuters reported.
“The banking system of Hong Kong is very robust,” Yam added.
Hong Kong officials are anxious to dispel these rumors and cut off a potential crisis of confidence similar to the one in the United States that caused the collapse of Wall Street giants as The Bear Stearns Cos. Inc. and Lehman Bros.
“Hong Kong's regulation over banks is really tight, so the chances of having a bank go bust is very slim,” Francis Lun, a general manager with Fulbright Securities, told The WSJ. “The problem is that there were recent instances where big, global banks vanished overnight, so every one just got panicky.”
Hong Kong authorities are investigating the source of the rumors, but have few leads.
“The case is still under investigation and no arrest has been made so far,” the Hong Kong police department said in an e- mailed statement, Bloomberg reported.
News and Related Story Links:
Bank East Asia Finances Are ‘Sound,’ Reports Rumors
The Wall Street Journal:
Bank of East Asia Depositors Queue for Funds after Rumors