Hong Kong injected nearly US$500 million into the financial system yesterday to shore up liquidity a day after the Bank of East Asia (BEA, 東亞銀行) was hit with what appears to be the region’s first major bank run since the global financial crisis erupted last year.
The embattled mid-sized bank got another boost when billionaire tycoon Li Ka-shing (李嘉誠) started buying the company’s stock after it plunged on Wednesday — a huge vote of confidence from the territory’s richest man.
“He did buy Bank of East Asian shares,” a Li spokeswoman, Wendy Tong Barnes, said. “It’s a personal investment.”
In what appeared to be a sizable bank run, thousands of customers converged on the bank’s offices across Hong Kong on Wednesday to demand their deposits amid unconfirmed rumors about the bank’s stability.
Yesterday saw fears spread to Singapore, where the bank reported higher numbers of customers withdrawing money.
The panic underscored a growing distrust of financial institutions in Asia since the turmoil on Wall Street began.
Confidence eroded further in recent weeks as thousands in Hong Kong and Singapore canceled policies with troubled insurer American International Group, and investors in Lehman Brothers products lobbied the government to help prevent losses.
Mindful of the tense mood, Bank of East Asia and Hong Kong authorities were quick to shoot down the rumors, spread by cellphone text messages in recent days, as “malicious” and baseless.
“Bank of East Asia is financially robust,” Hong Kong Financial Secretary John Tsang (曾俊華) said.
The bank, Hong Kong’s fifth-largest by assets, has declined to specify how much customers have withdrawn, but said it was not a large amount and no major clients had pulled their money.
It said its capital ratio was well above international standards. Seeking to calm investors, the bank also disclosed that its combined “exposure” to failed US financial companies Lehman Brothers and AIG was about HK$473 million (US$61 million).
The company’s stock was up almost 3 percent to HK$25.85 after tumbling more than 7 percent in the previous session.
With credit tightening following the run, the territory’s de facto central bank, the Hong Kong Monetary Authority, flushed HK$3.883 billion into the banking system.
Chief executive Joseph Yam (任志剛) said the agency acted after seeing an uptick in lending rates among banks.
“Because there was a bank run yesterday, the Hong Kong interbank [offered rate] was a bit tense this morning,” Yam said, adding that the infusion would ensure that banks have enough “money supply to handle various kinds of problems they have.”
The rumors emerged after Moody’s Investors Service changed its outlook on BEA’s credit rating from stable to negative last Friday, citing a recent insider trading case that exposed “lackluster internal controls” at the bank.
Last week, the bank revealed a trading loss of HK$93 million it says was incurred by a rogue equity derivatives trader who “manipulated” valuations to hide losses.
The discovery forced the bank to revise down its earnings for the first half of the year.
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