Bank of East Asia shares fluctuate as analysts lower profit forecasts

PUBLISHED : Wednesday, 29 October, 2008, 12:00am
UPDATED : Wednesday, 29 October, 2008, 12:00am

Shares of Bank of East Asia fluctuated yesterday as analysts revised down their earnings forecast for the bank, which issued its first profit warning on Monday.

DBS Group Research cut BEA's target price to HK$11 from HK$21 after slashing its forecast of the bank's earnings by 79 per cent for this year. It expects BEA's profit to fall by 93 per cent to HK$311 million.

'It's good that BEA now has no more collateralised debt obligations,' DBS said, but added that the mark-to-market losses were higher than expected.

The brokerage expected the bank would still face other challenges including lower loan and deposit growth and higher provisions due to the escalating global economic risks.

'We believe the earnings risks may even be higher than during the Asian financial crisis,' DBS said.

Shares of BEA fell to as low as HK$12.20, the lowest since March 1999, in morning trade but recovered to close the day 10.16 per cent up at HK$14.74 amid a broad market rally.

On Monday, the bank said it had disposed of its entire CDO portfolio with losses for this year related to the sale of HK$3.5 billion. It said full-year profits would fall substantially.

Credit Suisse downgraded BEA's earnings per share forecast for this year by 83 per cent, and cut the target price to HK$28 from HK$29.

'It is unlikely they will declare a final dividend and we expect the capital adequacy ratio to fall to 8.6 per cent,' Credit Suisse said.

Meanwhile, Standard & Poor's Ratings Services kept BEA's long-term and short-term counterparty credit ratings at A-minus and A2 unchanged. The rating agency has had the bank's ratings on credit watch with negative implications since September 18 after the bank announced a suspected fraud by a trader.

'The profit warning indicates that BEA's profitability in the second half of 2008 is highly likely to be substantially weaker than what we had earlier expected, even though we had factored in some volatility in valuations of CDOs,' said Standard & Poor's credit analyst Terry Sham.

The rating agency said it would meet BEA to reassess the bank's overall financial risk profile. The ratings could be lowered by a notch if S&P believes the bank's financial risk profile, risk appetite or its risk management procedures do not support the current rating.