BEA given negative outlook after bank run

PUBLISHED : Tuesday, 30 September, 2008, 12:00am
UPDATED : Tuesday, 30 September, 2008, 12:00am

Fitch Ratings lowered Bank of East Asia's rating outlook to negative from stable yesterday after the bank suffered a significant run on deposits last week due to rumours it faced financial difficulties.

'It is difficult to determine the level of damage incurred by the bank's franchise,' the rating agency said. But it added that BEA was financially sound and expected it would still achieve a net profit this year.

Fitch said the run came after a string of negative news, including its substantial exposure to and losses on US collateralised debt obligations, a significant fraud in its treasury operations and some limited exposure to Lehman Brothers and American International Group.

However, it affirmed the bank's long-term issuer default rating of A-minus and left the short-term rating of F2 unchanged. Shares of BEA fell 5.22 per cent yesterday to end at HK$24.50.

Moody's Investors Service lowered BEA's rating outlook from stable to negative on September 19. This came after Standard & Poor's placed the bank's rating under credit watch for a possible downgrade.

Separately, shares of Dah Sing Financial Holdings dropped 15.13 per cent to HK$33.65 yesterday. Dah Sing Banking Group fell 9.12 per cent to HK$8.57 after it said it had exposure of HK$362 million to Washington Mutual Bank, a unit of Washington Mutual, which filed for bankruptcy protection last week.

'It's not certain what losses will arise,' the bank said, but a full impairment of such exposure would result in a post-tax charge of HK$330 million for the bank and a post-tax charge of HK$280 million for Dah Sing Financial on consolidated basis.

Dah Sing Financial also agreed to inject HK$400 million by buying a new subordinated debt to be issued by Dah Sing Bank to maintain the bank's capital adequacy ratio, which stood at 16.4 per cent in June.

The Hong Kong Monetary Authority said local banks' total exposure to Washington Mutual amounted to only 0.05 per cent of total assets.