Wing Lung's HK$816m loss weighs on Merchants

Mid-tier lender Wing Lung Bank lost HK$816.15 million last year, becoming the first Hong Kong bank to report a full-year loss since 1999, while its parent China Merchants Bank made a goodwill provision and suffered a 61 per cent year-on-year plunge in profit in the fourth quarter.

Merchants Bank, the nation's fifth-largest lender by market value, saw its fourth-quarter profit drop to 2.08 billion yuan (HK$2.36 billion) from a year earlier, based on mainland accounting standards, because of higher bad debt provisions and expenses related to its acquisition of Wing Lung.

Figures for the quarter were obtained by subtracting profits in the first nine months from the full-year earnings.

The bank also made a goodwill impairment charge of 579 million yuan for Wing Lung, a 75-year-old family-run lender in Hong Kong, which Merchants Bank bought for HK$36.33 billion last year.

Wing Lung's HK$816.15 million loss last year compared with a HK$1.37 billion profit in 2007. The loss stemmed from the write-down of provisions of HK$819 million for its collateralised debt obligations investments and HK$316 million for its exposure to structured investment vehicles.

The Hong Kong lender also set aside provisions for some of its bond and investment holdings, which lost market value because of the financial turmoil, as well as allowances for the Lehman Brothers minibond setback.

'The bank's earnings will be under pressure this year, as credit demand weakens and the capital market remains turbulent,' Merchants Bank said in a Shanghai stock exchange filing.

However, it said the challenging times had also brought opportunity, especially from Beijing's efforts to stimulate the economy. 'We will be focused on developing the wealth management business and strengthening our edge in retail banking.'

Last year's profit at the mainland lender increased 38.27 per cent to 21.07 billion yuan on widening net interest spreads and benefits from a lower profit tax rate. The bank's full-year financial figures were the same by both mainland or international accounting standards.

'While we fear additional goodwill impairment charges and a likely need to raise capital in the not-too-distant future, we feel these factors are partly offset by its parent's stated intention to raise its stake,' Warren Blight, an analyst at Fox-Pitt, Kelton, said in an earlier report after the bank issued a profit guidance.

The bank's impairment charge rose 55.95 per cent to 5.15 billion yuan last year and the bad debt provision grew 23.19 per cent to 3.7 billion yuan.

Merchants Bank also wrote down 861 million yuan in bond investments related to Lehman and american International Group.

Loan growth rose 29.89 per cent to 874.36 billion yuan during the year, while the bad debt ratio fell 0.43 percentage point to 1.11 per cent.

Net interest spread widened 0.31 percentage point to 3.42 per cent.

Challenging year

CMB says earnings will remain under pressure this year

Fourth-quarter profit based on mainland accounting fell near, in yuan: 2.1b yuan