Hong Kong bank recovers from run

By Vaudine England
BBC News, Hong Kong

Customers queue outside the Bank of East Asia to withdraw their savings In pictures

The Bank of East Asia (BEA) in Hong Kong has recovered from a run on its deposits, after a cash injection from the government.

Hong Kong's central bank has added an estimated HK$3.9bn ($500m, £269m) to the territory's banking system.

The government has also repeated the bank's assurances that it is sound and that depositors have nothing to fear.

On Wednesday, rumours that the bank was vulnerable spurred thousands of people to withdraw their money.

On Thursday, the queues at bank branches were much smaller and before midday local time, the stock market had recovered most of what it had lost the day before.

Panic over?

Newspaper front pages on Thursday were dominated by the government's promise to support BEA and Hong Kong's banking system.

Analysts said that while investors in Hong Kong, as elsewhere, were nervous about the stability of the global financial system, there was little cause to fear a BEA collapse.

The government has traditionally stepped in to support local institutions to avoid unrest.

There were no signs of concern at other banks in the territory with business apparently at normal levels.

Traders and brokers, analysts and financial journalists, talk a lot - often with each other, even when they are not supposed to. The origins of financial rumour

BAE chairman David Li insisted his bank was sound.

In televised comments made late on Wednesday, he said: "Somebody is attacking BEA. I will buy Bank of East Asia shares tomorrow. People are doing this because they want to pummel the stock."

A half-page advertisement was published by the bank in local papers, stressing the support for BEA from the Monetary Authority, and its statements that rumours of bank instability were "unfounded".

"The business of the bank remains normal and all BEA branches continue to operate as usual," the advertisement said.

Chinese-language newspapers also gave prominence to reports that Asia's richest man, Hong Kong's Li Ka-shing, was buying heavily into BEA stock.

Mr Li, no relation to the Li family that controls BEA, is an octogenarian billionaire whose wisdom in investments is taken seriously.

'No concerns'

The bank's troubles began on Tuesday when a spate of mobile telephone text messages were sent alleging BEA would have to stop trading "in a day" because of its alleged exposure to the troubled US financial institutions Lehman Brothers and AIG.

BEA immediately responded by revealing its exposure, at about $60m, saying this was insignificant. BEA is the territory's fifth largest lender, and has been in business since January 1919.

Moody's Investor service downgraded BEA to "negative" last week after the bank booked losses made by a "rogue derivatives trader".

Moody's stressed this week it had no concerns about BEA's liquidity.