For Bank of East Asia chairman David Li Kwok-po, 2008 was what the Queen of England would describe as an annus horribilis: a horrible year.
It began on a bad enough note. In February, Mr Li paid HK$63 million to the US Securities and Exchange Commission to settle a charge of insider trading. In the outcry that followed, he was obliged to resign his seat in Hong Kong's Executive Council.
Then things got worse. In September, BEA found that a rogue trader had been covering up heavy losses on equity derivative deals, a discovery that wiped HK$131 million or 12 per cent off the bank's interim profit.
That admission helped unnerve depositors already rattled by the failure of Wall Street investment bank Lehman Brothers. As rumours swirled, the trickle of defections turned into a flood, with thousands of customers queuing outside BEA branches, desperate to withdraw their cash.
BEA survived the run, but the following month the bank was forced to issue a profit warning for the year after completely writing down the value of its entire HK$3.5 billion portfolio of collateralised debt obligations. Despite the write-off, investors remained wary, and BEA's share price ended the year down a massive 70 per cent (see the first chart below).
Their caution was merited. Yesterday BEA announced net profit for last year of just HK$39 million. That was down 99 per cent from 2007's figure (see the second chart) and far worse than most analysts had forecast, after the bank recorded a hefty 23 per cent increase in operating expenses, steep trading losses and a sharp rise in loan loss provisions, in addition to its collateralised debt obligation write-down.
Now, following yesterday's earnings announcement, Mr Li and the bank's other investors must be hoping that BEA has put the worst behind it. But unfortunately, although the immediate storm has passed, this year is unlikely to bring any great improvement in the bank's business environment.
