Bank of East Asia Ltd (BEA, 東亞銀行), the Hong Kong lender targeted by billionaire Paul Singer’s Elliott Management Corp, rejected a call by the hedge-fund firm to consider selling itself even after posting a bigger-than-expected profit drop.
Instead, the bank intends to focus on improving and executing on what it already has, according to a BEA statement filed to the Hong Kong stock exchange yesterday. That includes its China operations, which the lender said are “severely challenged” in a separate statement that outlined a 17 percent decline in full-year profit, higher bad loans on the mainland and a hiring freeze.
“Given the current challenging macroeconomic and operating environment as well as the business initiatives that are under way, now is a poor time to contemplate a sale,” the company said. “The bank will not be conducting an auction process.”
Photo: Bloomberg
In a letter to fellow shareholders earlier this month, Elliott urged BEA to explore a sale of the company “at an appropriate premium.”
Previous bids for Hong Kong banks have been priced at an average of two times book value, which for BEA would equal about HK$60 a share, according to the hedge-fund firm, which holds a 7 percent stake in the lender.
BEA shares gained 2.4 percent to close at HK$23.10, paring its 2.9 percent gain from the trading break, during which the bank’s statements were released. The stock has slumped 23 percent in the past six months.
A Hong Kong-based spokesman for Elliott did not immediately respond to phone calls and e-mails requesting comment on BEA’s rejection. In its letter earlier this month, the firm said BEA should now focus on delivering “proper value” for stockholders after blaming an “entrenched executive management” for mismanaging the business.
“With Elliot pushing BEA to sell itself, well, good luck with that,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “Even if a buyer was remotely interested, in the current environment two times book is very punchy.”
Separately, BEA reported a 17 percent decline in last year’s profit to HK$5.52 billion (US$709 million), which missed the HK$6.03 billion average estimate of three analysts surveyed by Bloomberg. The bank and NWS Holdings Ltd also said they were reviewing their investment in Tricor Holdings Ltd, which may result in a sale of the provider of business and investor services.
Net profit after tax for BEA’s China business tumbled 81 percent last year from the previous year, according to its earnings statement.
Among Hong Kong banks, BEA is the most exposed to China, where economic growth is slowing.
BEA’s nonperforming-loan ratio about doubled to 2.63 percent at the end of last year from 1.32 percent a year earlier, the company said. That compares with the 1.59 percent average for Chinese lenders in September, regulatory data show.
Asset quality in China improved in the second half of last year, deputy CEO Brian Li (李民斌) said at a press briefing yesterday, though he could not say whether the worst was over.
“With the slowdown in the mainland economy, risk management is critical,” his father, David Li (李國寶), who is BEA’s chairman and CEO, said in the earnings statement. “BEA China is applying a more conservative approach to lending, and our proactive measures have necessarily resulted in reduced loan volumes and margins.”
The elder Li flagged cost control as “a top priority” because the bank does not expect a “material improvement” in the business environment. It will freeze headcount across the group and will merge some of its sub-branches in mainland China, he said.
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