Wing Lung profit plunges 59pc to HK$350m

PUBLISHED : Thursday, 28 August, 2008, 12:00am
UPDATED : Thursday, 28 August, 2008, 12:00am

Wing Lung Bank, whose controlling shareholders have agreed to sell their stakes to China Merchants Bank, says it expects a tough environment in Hong Kong's banking industry in the second half of the year after reporting a 59.1 per cent dive in first-half profit.

'Given the weakened US dollar, continual macroeconomic controls [on the mainland] and appreciation of the yuan, Hong Kong's business environment will remain difficult,' the family-owned bank said.

Net profit fell to HK$350.23 million in the first six months from HK$855.44 million a year earlier, hit by HK$285.1 million in impairment losses and a write-down of HK$58 million for its exposure on structured investment vehicles (SIVs).

SIVs are usually set up by banks and financial institutions to raise funds by issuing short-term commercial paper to finance long-term investment with higher yields.

Wing Lung has made an impairment allowance for 95.5 per cent of its gross SIV investments, and its net exposure amounted to HK$26.7 million.

The bank also booked a HK$228.7 million loss on its collateralized debt obligations (CDOs) in the first half but that was offset by a net gain on disposal of securities.

Its net exposure to CDOs stood at HK$498.1 million or 0.5 per cent of total assets.

'The bank's profit could be lower or even in the red if there was no exceptional disposal gain since the performance of its core business was weak,' said an analyst at a brokerage.

Wing Lung's net interest income fell 7.4 per cent as the margin dropped 26 basis points amid fierce competition. Net fees and commission income fell 0.9 per cent as revenue from wealth management and securities business declined.

A 74 per cent increase in charges for insurance claims to HK$302 million also contributed to the drop in profit.

Wing Lung's operating profit might not improve much in the second half because the acquisition by Merchants Bank could affect staff morale, the analyst said.

Wing Lung said Merchants Bank's acquisition of a controlling stake was still being processed for approval by regulators.

Merchants Bank agreed in June to buy 53.1 per cent of Wing Lung for HK$19.3 billion in cash and it said it would make an offer for the rest of the Hong Kong lender. The transaction is expected to be completed next month.

Weak core

Net interest income, fees and commission were all lower

Wing Lung Bank was hit by impairment losses of, in HK$: $285m