Bank of China's effort late Friday to explain its links to a Shanghai businessman being investigated by Chinese and Hong Kong authorities fell short of what was needed to dispel concerns about the lender, analysts said.
China's No. 2 bank said it's examining reports linking Liu Jinbao (劉金寶), its former Hong Kong chief executive, to Zhou Zhengyi (周正毅), a Shanghai tycoon being probed over loans made to his companies. The disclosure, which also revealed a US$95 million claim it has on one of Zhou's companies, didn't go far enough, analysts said.
"The statement didn't clear investors' concerns over Liu Jinbao -- why was he replaced so abruptly? What was his role in granting this loan?" said Wei Yen, a Hong Kong-based banking analyst at Moody's Investors Service.
Zhou's five publicly traded companies in China and Hong Kong have lost about US$640 million of market value in the past two weeks, as reports of the investigation into his business surfaced.
Liu, who was replaced as chief executive of BOC Hong Kong (Holdings) Ltd on May 28, may have overseen some loans to Zhou, the Hong Kong Sing Pao Daily News and other newspapers reported.
Neither Zhou nor Liu has been charged with any wrongdoing, and neither of them was available to comment. Liu remains deputy chairman of BOC Hong Kong's Beijing-based parent.
The Bank of China's statement, published after 9pm on Friday, said it was investigating news reports and "complaints" about Liu. A similar statement by BOC Hong Kong to Hong Kong's stock exchange, published at the same time, made no mention of its former chief executive or the reasons for his departure.
Investors say BOC Hong Kong should have learned from an earlier incident involving its Beijing-based parent.
Bank of China was fined US$20 million by U.S. and Chinese regulators last year, forcing it to scrap plans for a New York listing of its BOC Hong Kong unit, which went on to raise US$2.63 billion in a Hong Kong listing.
"They should have revealed more detail on this earlier," said Francis Wong, investment director at Hong Kong-based Tai Fook Asset Management Ltd, which doesn't own any shares in BOC Hong Kong.
He said the shares may fall on the news.
The Bank of China said its Hong Kong unit has won a High Court of Hong Kong ruling ordering the liquidation of New Nongkai Global Investment Ltd, a company owned by Zhou, known as Chau Ching-ngai in Hong Kong.
It said BOC Hong Kong is owed HK$741 million (US$95 million) by New Nongkai.
The Bank of China didn't link former chief executive Liu directly with that loan and BOC Hong Kong's own statement said the advance "was conducted in compliance with the internal credit risk management policies and proce-dures and was properly approved by the credit committee."
The 42-year old Zhou arranged about 10 billion yuan (US$1.2 billion) of loans from lenders in Shanghai, including Bank of China, China Construction Bank, Shanghai Pudong Development Bank, China Minsheng Banking Corp and the Fujian-based Industrial Bank, the Economic Observer reported.
The presidents of these banks met on June 4 to discuss the issue and froze Zhou's accounts, the paper reported. Bank of China, Construction Bank and Industrial Bank were the most heavily exposed, with each having lent about 3 billion yuan to Zhou's companies, the paper said.
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