Two more banks fall victim to subprime crisis
Updated: 2008-03-06 07:00
By Karen Cho(HK Edition)
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Share prices of two small local lenders could continue falling today after it was revealed yesterday that their profits books have become the latest casualties of the subprime fallout.
Without any prior warning, Wing Lung Bank and Chong Hing Bank officials disclosed that their banks have structured investment vehicles (SIVs).
The news took investors and reporters by surprise, particularly when Wing Lung Bank said it would have to write off HK$594 million from collateralized debt obligations (CDOs) and SIV losses.
Wing Lung Executive Director Chung Che-shum said the bank hadn't disclosed its SIV holdings in previous financial announcements because of unstable economic conditions.
"We did reveal in our first-half announcement that we hold CDOs worth less than 1 percent of the bank's total assets," Chung said. "We did not mention anything about SIVs because the economic conditions and concerns back then were different," he said.
SIVs received widespread attention recently after Standard Chartered Bank announced it was canceling a plan to rescue its SIV portfolio named Whistlejacket, thereby incurring $116 million in losses.
Chung disclosed yesterday that Whistlejacket accounts for approximately 10 percent of Wing Lung's total SIV portfolio.
Wing Lung currently holds eight different SIVs totaling HK$772 million in value, as well as five CDOs worth a combined HK$873 million. Chung stressed that none of these investment vehicles are directly exposed to faulty mortgage assets, and he is confident that the impairment charges made will be sufficient.
Damage from CDOs and SIVs hurt Wing Lung's net profits last year, causing them to drop 14.6 percent to HK$1.37 billion despite robust growth in wealth management and equity-service-related income. Net fee income surged 73.4 percent last year to HK$500 million.
Chong Hing Bank was more fortunate in that it's net profits didn't drop last year, but it still reported HK$369 million in losses attributed to credit downgrading in its SIV holdings.
Chong Hing Executive Director Frank Jin said that the SIVs held in the bank's portfolio include Whistlejacket. Jin said the company had written off all of their assets under Whistlejacket, and he reassured that the remaining SIVs were of AA and AAA investment grade.
Jin said the bank's SIV portfolio is valued at HK$570 million, and most of that is held in government and bank bonds.
The HK$283 million gained from the lender's fee-and-commission business - 68 percent more than in 2006 - plugged the holes in Chong Hing's balance sheets. Net profits improved slightly last year, inching up 0.38 percent to HK$505 million.
Following the mid-day earnings reports, Wing Lung shares dived 5.58 percent, or HK$5.30, to close at HK$89.65. Chong Hing shares fell 1.69 percent, closing at HK$16.26.
(HK Edition 03/06/2008 page2)