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Bank of East Asia posts first big loss in 4 decades

(China Daily)
Updated: 2009-02-18 08:09

Bank of East Asia Ltd, the Hong Kong lender that suffered a run on deposits in September, had its first loss in at least four decades after writing down the value of credit-market investments.

Related readings:  Net profit of Bank of East Asia plunges 98%  Depositors calm after two-day run on HK's Bank of East Asia

The HK$855-million deficit for the six months ended Dec 31, derived by subtracting first-half earnings from full-year numbers reported by the company yesterday, compares with a profit of HK$2.26 billion a year earlier.

Chairman David Li said he would "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.

Bank of East Asia shares rose 3.6 percent yesterday in local trading before the 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.

"The result is a great disappointment to me and to our entire management team," Li said in a briefing in Hong Kong yesterday. "Looking on the brighter side, we have now written off our entire CDO holdings and entered 2009 with a clean slate."

Agencies