HONG KONG: Bank of East Asia Ltd (BEA), Hong Kong's third-biggest lender by market value, said first-half profits rose 49 percent as this year's stock market recovery spurred trading revenue.

Net income in the six months ended June 30 rose to HK$1.17 billion ($151 million), or HK$0.64 a share, from a restated HK$785 million, or HK$0.43 a share, a year earlier, the bank said in a statement yesterday. Profit beat the HK$1 billion median estimate of seven analysts surveyed by Bloomberg.

Chairman David Li, 70, pledged in March to rein in spending to help the bank recover from its first loss in four decades, caused by almost HK$1 billion of impairment charges and a 23 percent jump in expenses. Li, appointed chairman in 1997, said yesterday he has been asked by the board of directors to stay "for another two to three years."

Dominic Chan, Hong Kong-based analyst at BNP Paribas Securities Asia Ltd, said Li's personal network is instrumental to the bank's development, especially on the mainland. "It won't be easy to replace those qualities," he added.

Operating costs were little changed from the previous six months at HK$3.04 billion, the bank said.

Bank of East Asia "has controlled costs in a difficult economic environment," said Nick Lord, an analyst at Macquarie Securities Ltd. who has an "outperform" rating on Bank of East Asia, before the announcement.

As for the day's trading, the bank's shares reversed earlier losses and gained 1.8 percent at the 4 pm close in Hong Kong yesterday, after falling in morning trading. The stock has risen 77 percent this year, the third-best performance among 11 Hong Kong-traded financial companies tracked by the Hang Seng Finance Index, which rose 42 percent over the same period.

The bank posted a HK$746 million loss in the second half of last year after bad-loan charges more than doubled. It booked HK$3.5 billion of losses in 2008 after selling all its holdings of collateralized debt obligations.

CDOs, which repackage bonds, loans and credit-default swaps and use the income to pay investors, plunged as lending froze after the collapse of Lehman Brothers Holdings Inc.

Year-earlier figures were restated because of "unauthorized manipulation" of the valuation of equity derivatives held by the bank, according to the statement.

BEA yesterday predicted a "continued recovery" in the global economy in the second half, as the US starts to emerge from a housing-led slump.

The bank said impairment losses rose to HK$493 million from HK$315 million a year earlier. It made a gain of HK$874 million from trading, compared with a loss of HK$213 million. Net interest income fell to HK$3.23 billion in the first half from HK$3.48 billion a year earlier, while net fee and commission income dropped to HK$1.01 billion from HK$1.19 billion.

BEA was founded by David Li's grandfather and great uncle in 1918. It was the first Chinese-owned lender in Hong Kong, then a British colony.

The Cambridge-educated Li joined the bank in 1969 and became chief executive officer in 1981. He also represents the banking industry in the city's Legislative Council.

Adrian and Brian Li, his two sons, were promoted to deputy chief executive in March, coinciding with the departure of other senior executives, including former Chief Financial Officer Daniel Wan and Executive Director Joseph Pang.

"I'd want to retire as soon as possible," Li said yesterday in a briefing. "But the board wants me to stay on until the economy and our business get better."

China Daily - Bloomberg News

(HK Edition 08/26/2009 page4)