Tycoons prop up Bank of East Asia, shares rebound

By Alison Leung and Kevin Lim

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

Wednesday's stock fall wiped hundreds of millions of dollars from the value of Hong Kong's No. 5 lender and triggered a public scare, underscoring how nerves are running raw among the public as much of the world struggles with financial markets turmoil.

Rumors the lender had run into liquidity problems drove thousands of frantic customers to its outlets on Wednesday and sent its stock tumbling 11 percent, before closing down 7 percent.

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

"He called me and said he did not understand why people do that," Chairman David Li told reporters, referring to the market talk. "He said he was very confident of Bank of East Asia and he bought shares."

Hundreds of people however continued to queue outside Bank of East Asia branches in Hong Kong on Thursday. Some slept overnight outside outlets.

The stock surged 5.6 percent before ending the morning session up 2.8 percent. The rumors have knocked about HK$1.9 billion ($245 million) market value to HK$43 billion as of midday.

Analysts voiced confident about the bank's financial health after talking to executives on an evening conference call.

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

Only about HK$2 billion in deposits had been withdrawn in Hong Kong on Wednesday, representing a tiny 0.7 percent of the bank's HK$300 billion deposit base, DBS Vickers estimated.

"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 Securities.

Joseph Yam, the city'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 deposit outflow from Bank of East Asia.

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

VICTIMS