Approval likely for bank takeover
BANK of East Asia has acknowledged that it plans to take over a local bank at the same time as it posted a 35.9 per cent jump in final profits for 1992.
Setting a brisk pace for the reporting season, BEA yesterday announced 1992 net profits of $685.28 million, slightly above market expectations.
And, foreshadowing what lies ahead for Hongkong's few remaining small, family-owned banks, the territory's third-largest is poised to prevail in a bid for the third-smallest.
Having been rebuffed by the government on at least two occasions, BEA's irrepressible chief executive David Li Kwok-po has now set his acquisitive sights on United Chinese Bank.
Commissioner of Banking David Carse said yesterday that the requisite government consent for the deal - which is not final - had yet to be granted, but he indicated that approval was little more than a formality.
''We're not at that stage yet, but I don't anticipate any problems,'' he said.
As BEA's asset base was 35 times that of its tiny quarry, a deal would have no effect on BEA's share price, analysts said.
BEA's adjusted 1992 earnings per share were $1.61, up 30.9 per cent from $1.23 in 1991. The average forecast for earnings per share growth was $1.54, according to The Estimate Directory.
Final dividend per share was 80 cents, up 28 per cent from the previous year.
A one-for-five bonus share issue has been proposed.
Regarding the takeover bid, BEA general manager Chan Kay-cheung echoed a stock exchange announcement made yesterday morning by Mr Li.
''We're still in the process of negotiation, so I don't think it's appropriate to comment until things have been finalised.'' There was an agreement between the two parties, as well as an understanding with the stock exchange and the Commissioner of Banking, not to comment on the matter, he added.
Analysts agreed that BEA would be hard put to match 1992's pace of growth in 1993.
According to Ms Janet Cowell of brokerage Lehman Brothers, BEA's loan portfolio is highly skewed towards residential mortgage loans - by about 45 per cent - which leaves the bank more vulnerable than its peers to a slowing of volume and margins in that business.
Analysts cautioned that with BEA's acquisition programme in Hongkong and ambitious expansion plans in China, a fund-raising exercise was likely this year.
Although 10 per cent of the bank's portfolio is direct loans to China, Nomura Research Institute's banking analyst Victor Kwan estimated that less than two per cent of the bank's profits came from China business.
Another analyst observed: ''Their China network will cost a packet to set up and they're not going to see any of the rewards for at least several years'' as the retail market was unlikely to open to foreign banks soon.
United Chinese Bank was founded by Hongkong businessman S.K. Yu, who owns 97 per cent of the bank and remains chairman.
Yesterday, press reports quoted ''reliable sources'' as saying Bank of East Asia would acquire at least 51 per cent of the bank.
Analysts dismissed the suggestion of any impact of the possible acquisition on the share price.
''To a certain extent the acquisition will help in terms of business activities, but it will not help Bank of East Asia improve its profit performance in coming years,'' Mr Kwan said.
BEA's total assets of $54.98 billion as of the end of 1991 dwarf United Chinese Bank's $1.56 billion by more than 35 times.
Similarly, the boost to BEA's deposit base of $52.23 billion at the end of 1991 would be even more marginal from the $1.28 billion at United Chinese.
But the deal would boost BEA's local branch network from 62 to 79, assuming none were combined due to overlap.
According to published figures, United Chinese saw a 25.9 per cent decline in profits in 1990, followed by an increase of 43.4 per cent in 1991 to $18.93 million.
Following a 12.5 per cent increase in total assets in 1990, United Chinese saw a 1.9 per cent asset drop in 1991.
During the same year, deposits from customers and other institutions fell 2.7 per cent from 1.32 billion to 1.28 billion.
Monitor, Page 12