Hang Seng Bank reported a 381.9 per cent surge in bad debts and a sharp decline in its wealth management business for last year as the global financial crisis took hold. Deteriorating business conditions led the city's second-biggest lender to report a worse than expected 22.71 per cent decline in profit to HK$14.1 billion for last year. Analysts expected earnings to fall 14.39 per cent on average, according to Thomson Reuters estimates. Earnings stood at HK$7.37 per share, against a profit of HK$18.24 billion or HK$9.54 per share a year earlier. It was the bank's first profit decline since 2005 when earnings dipped 0.2 per cent. The bank's shares fell 3.16 per cent yesterday to HK$84.25. Hang Seng vice-chairman and chief executive Raymond Or Ching-fai said the surge in bad debts was partly due to a write-off of its entire holdings of debt securities in the collapsed Washington Mutual Bank. Previously, one of the largest United States lenders, Washington Mutual collapsed in September last year. While Mr Or did not disclose its exact holding in Washington Mutual debt securities, he said the bank 'can now put the implication of Washington Mutual investment to an end'. The bank's annual results showed its bad treasury debts, including Washington Mutual and other bonds which had become worthless, had reached HK$1.37 billion. In addition, Hang Seng was hit by higher provisions for corporate and individual loans of HK$1.4 billion, causing bad debts to rise to HK$2.77 billion from HK$576 million a year earlier. 'The increase in bad debts was partly due to the poor operating economic environment in the fourth quarter of last year,' Mr Or said. The poor investment market meant impairment charges of HK$284 million linked to paper losses on the bank's stock investments. The rocky stock market also eroded investor risk appetites, resulting in the bank's wealth management income dropping 37.6 per cent year on year to HK$5.38 billion, while private banking income fell 75.4 per cent year on year. The drop in wealth management business cut fee income by 27.8 per cent but that was offset by an increase in net interest income of 10.3 per cent to HK$1.51 billion. Confirming a South China Morning Post report, the lender announced that Mr Or would retire on May 6 while his successor, Margaret Leung Ko May-yee, currently HSBC Group general manager and global co-head of commercial banking, would become the lender's first female head. The lender kept its full-year dividend unchanged at HK$6.30 per share, the second-highest over the past 10 years. The fourth-quarter dividend was HK$3 per share. While parent HSBC Holdings has announced a huge rights issue offering, Mr Or said Hang Seng did not need to undertake any fund raising. The bank's capital adequacy ratio stood at 12.5 per cent at the end of last year, compared with 11.2 per cent a year earlier. Louis Tse Ming-kwong, a director of VC Brokerage, said the high level of provisions was mainly due to Washington Mutual. 'That has been enough to cover the risk but the outlook for its wealth management business is not positive because of the poor market,' Mr Tse said. 'But Hang Seng still has a strong cash and capital position so it should outperform its Hong Kong peers.' Mr Or said the bank had frozen salaries but was still paying bonuses, with the highest equal to 3.5 months of salary.