Customers queue up outside Bank of East Asia's Sha Tin branch yesterday. They demanded to withdraw their deposits after the bank was hit by rumors questioning its financial stability. Edmond Tang

It was 2pm and Mr Chan was about to step out of the noodle shop in Aberdeen as he took the last sip of lemon tea.

The 42-year-old clerk was supposed to return to his office, when his mobile phone rang.

After talking to his friend for five minutes, a jittery Chan rushed to Bank of East Asia's (BEA) Aberdeen branch.

There was already a huge crowd outside the bank as anxious depositors stood in a 300-m queue and policemen were nearby to maintain order.

Chan was among thousands of panicky Hongkongers who swarmed on BEA branches across the city to withdraw their deposits after messages spread that the bank could be forced to stop trading "within a day" due to its exposure to the US credit crunch.

Although BEA and government officials dismissed the messages as "sheer rumors" in the afternoon, long queues remained outside BEA branches. Hong Kong's fifth largest lender by assets has just become the first bank hit by a run in more than a decade here.

"I don't know if it is rumor or not. I just want to make sure my 'money of blood and sweet' is safe," Chan told China Daily while edging his way to the end of the queue. He has HK$1 million worth of deposit and funds in BEA.

Chan opened his account with BEA after the bank set up a branch in Aberdeen more than 10 years ago. Since then, he had not patronized any other bank.

But his loyalty was shattered after the recent weeks of unprecedented global financial turbulence that witnessed the fall of once seemingly-impregnable Wall Street giants such as Lehman Brothers and American International Group.

Analysts and economists said the squeeze reflected mounting caution amid the financial meltdown in the US.

"With or without this incident, the whole financial market has been pretty fragile of late because of the external turmoil and how Hong Kong banks are exposed. Overall sentiment is very jittery," said Standard Chartered economist Kelvin Lau.

"From a consumer's perspective, they see a negative wealth effect from the stock market; property prices are stabilizing, if not falling; and banks are holding back in granting loans."

A banker said local people's psyche was at a low, with herd mentality running high in the city.

"There was a rumor about some liquidity problems at the bank and some naive retail customers started lining up outside the bank, spreading panic," said Peter Lai, a DBS Vickers director.

'Sound and stable'

BEA said its financial situation is "sound and stable", giving out a slew of data.

It noted its capital ratio was well above international standards at 14.6 percent, and its exposure to Lehman Brothers and AIG was minimal at a total HK$472.7 million.

"The rumors are groundless," its deputy chief executive Joseph Pang said at an afternoon press conference, adding that the bank didn't ask the central bank or any peer for help.

Pang said only smaller depositors had rushed to retrieve their money, and there were no corporate clients.

The lender has HK$2 billion to HK$3 billion cash at present, enough to meet withdrawal demand, he said.

BEA extended its service time by half an hour and allowed pre-mature withdrawals yesterday, but still failed to satisfy many anxious customers. Some of them were still gathering outside bank branches and said they would stay overnight.

The lender didn't reveal how much money was taken out.

An 'attack'

BEA Chairman David Li said late yesterday the rumors were deliberate "attacks" on his bank, though he has no idea who initiated.

The bank has asked police to look into the "malicious rumors", saying they were not "pranks".

"It was aimed at disrupting the city's financial system," Pang told reporters.

The police said they are still investigating the case, and "no arrest has been made so far".

Legal experts said spreading rumors via cell phones and the Internet that caused economic losses can be a criminal offense and the offenders may be jailed for a maximum of five years.

BEA alleged that the rumors spread since Monday.

Agencies contributed to the story

(HK Edition 09/25/2008 page2)