Bank of East Asia rejects hedge fund’s call to explore sale

HONG KONG: Bank of East Asia Ltd, the Hong Kong lender targeted by billionaire Paul Singer’s Elliott Management Corp, rejected a call by the hedge-fund firm to consider selling itself even after posting a bigger-than-expected profit drop.

Instead, the bank intends to focus on improving and executing on what it already has, according to a BEA statement filed with the Hong Kong stock exchange yesterday.

That includes China operations, which the lender said are “severely challenged” in a separate statement that outlined a 17% decline in full-year profit, higher bad loans on the mainland and a hiring freeze.

“Given the current challenging macroeconomic and operating environment as well as the business initiatives that are under way, now is a poor time to contemplate a sale,” the company said.

“The bank will not be conducting an auction process.”

In a letter to fellow shareholders earlier this month, Elliott urged BEA to explore a sale of the company “at an appropriate premium.” Previous bids for Hong Kong banks have been priced at an average of two times book value, which for BEA would equal about HK$60 a share, according to the hedge-fund firm, which holds a 7% stake in the lender.

BEA shares closed 2.4% higher at HK$23.10 yesterday. The stock has slumped 22% in the past six months.

In its letter earlier this month, the firm said BEA should now focus on delivering “proper value” for stockholders after blaming an “entrenched executive management” for mismanaging the business.

Separately, BEA reported a 17% decline in 2015 profit to HK$5.52bil (US$709mil), which missed the HK$6.03bil average estimate of three analysts surveyed by Bloomberg.

Net profit after tax for BEA’s China business tumbled 81% in 2015 from a year earlier, according to its earnings statement.

Among Hong Kong banks, the lender is the most exposed to China, where economic growth is slowing.

BEA’s non-performing-loan ratio in the nation about doubled to 2.63% at the end of 2015 from 1.32% a year earlier, the company said.

That compares with the 1.67% average for Chinese lenders at the end of last year, regulatory data released yesterday show.

Asset quality in China improved in the second half of last year, deputy chief executive officer Brian Li said at a press briefing yesterday, though he couldn’t say whether the worst was over.

“With the slowdown in the mainland economy, risk management is critical,” his father David Li, who is BEA’s chairman and CEO, said in the earnings statement.

“BEA China is applying a more conservative approach to lending, and our proactive measures have necessarily resulted in reduced loan volumes and margins.”

The elder Li flagged cost control as “a top priority” because the bank doesn’t expect a “material improvement” in the business environment.

It will freeze headcount across the group and will merge some of its sub-branches in mainland China, he said. – Bloomberg