Tycoons prop up Bank of East Asia, shares rally

HONG KONG/SINGAPORE (Reuters) - Shares in Bank of East Asia (0023.HK) rallied on Thursday after billionaire Li Ka-shing bought stock, but jittery customers in Hong Kong and Singapore withdrew their savings even after the lender denied rumours of financial distress.

On Wednesday, shares in Hong Kong's fifth-ranked lender by assets had dropped more than 11 percent, triggering panic among some depositors and highlighting the fragile mood in global financial markets.

The bank's chairman, David Li, and Li Ka-shing, the tycoon who runs Cheung Kong (0001.HK) and Hutchison Whampoa (0013.HK), bought shares in the company on Wednesday in a show of support.

"He (Li Ka-shing) called me and said he did not understand why people do that," Li told reporters, referring to the rumours that spread quickly by mobile phone. "He said he was very confident of Bank of East Asia and he bought shares."

Hundreds of customers, however, queued outside BEA branches again on Thursday, with some sleeping there overnight.

More than 400 customers crowded the bank's only branch in Singapore, despite assurances from the Monetary Authority of Singapore that the bank was sound.

Bank of East Asia shares jumped 5.6 percent in early Thursday trade before closing up 3.4 percent.

Analysts said they were confident about BEA's financial health after talking to executives on a late Wednesday conference call, though Citigroup cut its BEA earnings estimates by 15 percent for 2008 and 11 percent for 2009 on the back of its exposure to collapsed Lehman Brothers LEHMQ.PK bonds and narrowing interest margins.

Bank of East Asia, in which Spain's Criteria Caixacorp CRIT.MC owns a stake of more than 9 percent, noted its capital ratio was well above international standards at 14.6 percent and its total exposure to Lehman and AIG (AIG.N) was minimal at $61 million. [nSP359997]

DBS Vickers Securities estimated that withdrawals from BEA totalled about HK$2 billion in Hong Kong on Wednesday, just 0.7 percent of the bank's HK$300 billion deposit base.

"In the very worst case, China can be ready to provide any support to our banking system, and Bank of East Asia is in fact too small to fall," said Jasmine Lai at DBS Vickers

Joseph Yam, Hong Kong's central bank chief, warned that banks could be cautious and unwilling to lend to other banks.

The de facto central bank injected HK$3.88 billion into the territory's interbank market on Thursday, the second injection in less than two weeks, to soothe credit tightness and counter the BEA deposit outflow.

"The market may continue to be tight and we, if necessary, will provide the market or individual banks liquidity," Yam said.

VICTIMS

But the credit market was sceptical.

Bank of East Asia's 5-year credit default swaps (CDS) BKEA5YUSAC=MP, insurance-like contracts that protect against default and restructuring, was offered at 250 basis points, according to one trader, who said there were no bids. The CDS last traded at 173.50 bps.

The Hong Kong TED spread, which measures the difference between Hong Kong interbank rates HIBOR= and central bank bills, widened to a 10-month high despite the Hong Kong Monetary Authority's injection.

The 1-year spread rose to a high of 240 bps, up about 100 bps in a week, before easing to 220 bps later.

Depositors remained unsure.

"I don't have confidence any more as I happen to be a victim of Lehman and suffered losses on their products," said a woman surnamed Leung outside one branch, adding she had lost HK$200,000 in Lehman mini-bonds.

"I wouldn't say I'm very worried, but I want to avoid any risk," said Henry Wong, a 50-year-old accountant, who queued for 10 hours on Wednesday and another two hours on Thursday to get his money out of the bank.

Lingering concerns about the profitability of the local banking sector in the global financial crisis could put pressure on the stock in the longer term, analysts said.

($1=HK$7.770)

(Additional reporting by James Pomfret, Umesh Desai and Susan Fenton; Editing by Edwin Chan & Ian Geoghegan)