Hang Seng warns of WaMu exposure, shares slide

HONG KONG (Reuters) - Hang Seng Bank warned on Thursday of exposure to Washington Mutual (WaMu) which has been seized by U.S. regulators, sending its shares down 10 percent.

Hang Seng, a unit of global lender HSBC, is the second Hong Kong bank in less than a week to reveal exposure to debt securities issued by the failed Seattle-based savings and loan institution.

It did not disclosure the value of the debt securities.

Hang Seng's exposure to WaMu was likely to be manageable but the bigger issue was its large holdings of debt securities issued by banks and other financial institutions, analysts at Citigroup said. They estimated Hang Seng held HK$162 billion ($21 billion) in such investments at end-June, equal to 22 percent of its total assets.

A Hang Seng spokesman said in an e-mail reply to Reuters: "If deemed necessary, we will make appropriate disclosures in accordance with regulatory requirements."

Hang Seng's shares hit a session low of HK$130 before recovering slightly to close down 8.9 percent at HK$131.50. It has fallen about 18 percent this year, outperforming a 35 percent fall in the blue chip Hang Seng Index

Analysts worry Hong Kong banks could see lower earnings in the second half of 2008 due to possible provisions against U.S. subprime bonds and lower profit margins amid rising interbank rates caused by tightness in the market.

On Monday, Dah Sing Financial Holdings Ltd said unit Dah Sing Banking Group had exposure of about 31.9 million euros ($44.7 million) to WaMu as of the end of June.

Dah Sing Financial's shares have plunged 22 percent this week to HK$31.05 on Thursday. Dah Sing Banking, one of Hong Kong's smallest banks, is down 17 percent this week.

"A write-off of a similarly sized exposure as Dah Sing Bank would be about 2 percent of Hang Seng's estimated earnings for 2008," Citigroup said.

Hang Seng Bank is trading at a premium to many other banks in the region because it has so far had no exposure to subprime or collateralized debt obligations, analysts said.

The stock is trading at 14 times estimated 2008 earnings against 12 times for HSBC and 11 times for Industrial and Commercial Bank of China, the country's largest bank.

Brokerage CLSA said Hang Seng was likely to have further exposure to the financial trouble in the western world.

"With more commercial banks falling into financial troubles lately, Washington Mutual Bank and Fortis being the lastest causalities, we will not be surprised if Hang Seng has some exposures in these banks," Kevin Chan at CLSA said in a research note on Thursday.

($1=.7140 Euro=HK$7.77)

(Editing by Lincoln Feast)