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Asia woes hit HK bank stocks
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January 21, 1999: 8:06 a.m. ET
Hong Kong Shanghai shares down 3% as fears of Asian debts mount
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LONDON (CNNfn) - HSBC Holdings Plc, the colonial-era banking colossus that accounts for more than a quarter of the territory's stock market value, sparked a sell-off across the financial sector Thursday amid escalating worries about exposure to a failed Chinese investment trust and bad debts in Thailand.
In a sell-off in Hong Kong that pushed the Hang Seng index down 266.34 points, or nearly 2.6 percent, HSBC, whose global assets exceed $400 billion, fell HK$5.00, or 2.4 percent to HK$200.
Among the big-ticket decliners, Hang Seng Bank slid $2.25 or 3 percent to HK$73, Bank of East Asia fell HK$1.20 or about 10 percent to HK$10.85. Dah Sing Bank fell HK$2.05 or 11.8 percent to HK$15.35.
The damage was not confined to the Pacific Rim. In London, Standard Chartered, which has heavy exposure in Asia, eased nearly 3 percent on the FTSE to 817 pence.
HSBC was down 55 pence at midday, or 3.11 percent to 1,710.
The sell-off marked the latest chapter in a game of guess work over the future fate of China's economy which had, until recently, seemed to withstand the worst ravages of the Asia crisis.
Last October, Chinese authorities closed down the Guangdong International Trust and Investment Corp., or GITIC, after the firm defaulted on maturing debt.
The toppling of such a prominent pillar of the mainland economy has ignited fears across Asia that scores of other Chinese investment trusts and non-financial red chip companies may be next in line to succumb to bad debt.
Indeed, since the GITIC closure, two other Chinese trusts - Dalian International Trust and Investment Corp. and Guangdong Overseas Chinese Trust and Investment Corp. - have said they will seek debt rescheduling.
The events have taken on an added psychological dimension at a time when Asia is struggling to recover from a debilitating economic crisis. Many regional companies have heavy exposure to Chinese companies, so the prospect of a sudden spate of bankruptcies on the mainland does little to allay investor concerns.
Earlier this month, the Hong Kong Monetary Authority disclosed that, excluding GITIC, exposure of the territory's banks to Chinese investment firms and their subsidiaries totaled HK$40.4 billion (U.S.$5.21 billion). GITIC exposure totaled HK$7 billion.
Fears of a yuan devaluation
In recent days, Asian markets have been hit further by fears that a devaluation of the Chinese yuan - until now resisted by the nation's leaders - could be in the offing.
Despite the trickle-down signs that something may be amiss, some in Hong Kong insist the exposure is not as grave as markets are making it out to be.
On Wednesday, William Purves, a former chairman of HSBC Holdings, told reporters in Hong Kong that the territory's total exposure to GITIC is not "excessive" and appealed for the international community to put the situation in perspective, Reuters reported.
"Of course it is large and needs to be managed, but as a total percentage of banks' assets, of the Hong Kong banking industry's assets, it is not too large and I don't think we should exaggerate the position," Purves, who chaired HSBC for 12 years, was quoted as saying.
Nonetheless, the sense of impending crisis may have been ratcheted up a notch Thursday after The Wall Street Journal reported HSBC Holdings will reveal huge losses on its $3 billion Thai loan portfolio when it releases its full-year results next month.
But analysts downplayed the Thai debts.
Neil Baker, a banking analyst with Dresdner Kleinwort Benson, suggested much of the ballyhoo being made of HSBC is overdrawn. "It's been a very good performer," Baker said, noting that the Thai portfolio represented a small fraction of the bank's business.
HSBC and Hang Seng Bank are scheduled to report their 1998 earnings on Feb. 22.
--From staff and wire reports
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