Credit rumours trigger run on Hong Kong's Bank of East Asia (Roundup)

Sep 24, 2008, 10:52 GMT

A long line forms as Hong Kong people queue up to withdraw their savings during a \'bank run\' at a branch of the \'Bank of East Asia\' in North Point district of Hong Kong, China, 24 September 2008. EPA/ALEX HOFFORD

Hong Kong - Panicked customers formed long queues Wednesday to withdraw savings from the Bank of East Asia in Hong Kong as rumours circulated that the bank was facing financial collapse.

The rumours spread mostly by SMS messages were categorically denied by the bank's management, but it was forced to extend business hours by 30 minutes to cope with the queues of anxious customers.

Messages passed between customers warned them to get their money out and claimed that the bank could be forced to stop trading 'within a day' because of exposure to US credit crunch-affected business.

The Bank of East Asia blamed 'malicious rumours' about the bank's stability for the run on the bank and said it had called in police to investigate.

In a statement, the bank said it had assets of more than 50 billion US dollars in June and its capital adequacy ratio was 14.6 per cent - a level it described as 'well above the international required level.'

It said the bank's total exposure to the collapsed US investment bank Lehman Brothers Holdings Inc and American International Group Inc, the world's largest insurer, which was bailed out by the US government last week, was 422.8 million Hong Kong dollars (54.46 million US dollars) and 49.9 million Hong Kong dollars, respectively.

The assurance along with an assurance from the Hong Kong Monetary Authority did little to calm customers, however, who flocked to its 130 city branches to withdraw money.

One customer waiting in line outside a branch in Hong Kong's Central district said: 'I don't trust the bank and I don't trust the Hong Kong Monetary Authority either. I'm taking my money out because I don't think it's safe there.'

A middle-aged housewife leaving her local branch of the bank said: 'I've taken out my savings. I haven't thought what I will use the money for but it's better to spend it on food than lose it altogether.'

The bank's statement said: 'The management ... understands that these rumours were first disseminated via electronic devices later in the afternoon on 23rd September.

'Upon learning of the malicious rumours, the management ... immediately reported the matter to police and the Hong Kong Monetary Authority. The police are taking expedient and appropriate measure in response.'

The statement added that management 'states in the strongest possible terms that such rumours have no basis in fact. ...The bank's financial position is sound and stable.'

Speaking to reporters, deputy chief executive Joseph Pang insisted the bank had decided to give customers what they asked for as the run on the bank gathered pace Wednesday.

'If we don't do this, they start to think we are in big trouble,' he told the government-run radio station RTHK. 'We are not in trouble financially.'

Set up in 1918, the Bank of East Asia is the largest independent local bank in Hong Kong and had total consolidated assets of 50.85 billion US dollars as of June 30, according to its website.

The bank has 60 outlets in mainland China and around 30 more in the United States, Canada and Britain and employs more than 10,800 people worldwide.