Bank of East Asia (BEA) revised down its reported 2008 interim earnings yesterday after it discovered one of its traders buried losses from unauthorized equity derivates trades.

Trading in BEA shares was suspended during the afternoon session yesterday, pending a statement. The bank said it discovered a trading loss of HK$93 million for the first six months of 2008 and was restating its first-half after-tax profits lower by HK$109 million or 11.7 percent, the profits revised to HK$821 million from HK$930 million announced in August.

Shares in BEA fell 6.6 percent to HK$27.55 before trading was suspended yesterday, as global financial turmoil triggered a heavy sell-off in banks listed in Hong Kong.

David Li, chairman of BEA, did not reveal how the lender could discover the trader's actions but told a Hong Kong media that the bank had informed all relevant authorities about the case.

"We have reported the case to the police and notified regulators, including the Hong Kong Monetary Authority (HKMA)," Li said.

However, this will have no material effect on the bank's balance sheet or capital, which remain significantly in excess of regulatory requirements, according to the statement on the stock exchange. BEA also said no further trading losses have been incurred on the affected equity derivatives since the end of June.

The HKMA spokesperson said the bank has reported the case and the authority is following it up closely.

The HKMA has asked KPMG, the bank's auditor, to conduct a review of the incident and recommend enhancement measures to prevent similar fraud in the future.

"The incident does not have any material impact on the safety and soundness of BEA. The incident is unrelated to the recent financial market turmoil," the HKMA said.

Ratings agency Standard & Poor's put BEA's ratings on negative watch yesterday after the news.

It had placed its "A-" long-term counterparty credit rating and "A-2" short-term counterparty credit ratings on BEA and Bank of East Asia (China) on CreditWatch with negative implications, following BEA's announcement that it had uncovered an unauthorized manipulation of the valuation of certain equity derivatives held by the bank.

At the same time, the issue ratings on the bank's rated debt were also placed on CreditWatch, with negative implications.

(HK Edition 09/19/2008 page1)