Bank of China (HK) 2388

[winston]

No chance to buy the puts. Both were up 40% at one time..

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STOCK ALERT - BOC Hong Kong down on broker downgrade

HONG KONG (XFN-ASIA) - BOC Hong Kong (Holdings) Ltd shares were lower after Goldman Sachs downgraded the stock to "conviction sell" from "neutral".

Goldman also cut its 6-month target price for the bank to 13.7 hkd from 21, citing "sector-topping" exposure to high-risk financial instruments and challenging operating outlook for the second half of 2008 and full year 2009.

At 10:43 am, the shares were down 0.42 hkd or 2.48 pct at 16.48.

[winston]

JP Morgan late on Wednesday downgraded Bank of China Hong Kong (2388.HK: Quote, Profile, Research, Stock Buzz), a unit of Bank of China, to neutral from overweight after disappointing results for the third quarter and a likely cut in dividends in the second half. It cut its target price for the stock to HK$12.90 from HK$21.

Bank of China Hong Kong shares ended at HK$9.22 on Wednesday.

Citi also cut the target price of Bank of China Hong Kong to HK$8.30 from HK$16.

[winston]

Not vested. From Dr. Check:-

The third-quarter report of the Bank of China (Hong Kong) (2388) showed a fall in operating income and lower net fee and commission income from investment-related businesses.

Also down were net trading income, net interest income and net interest margin. Personal and corporate banking is slowing down, as are the treasury and insurance segments.

BOCHK had a historical dividend of 10 percent as of yesterday's close at HK$8.80. It appears attractive.

But bear in mind that in 1997 earnings of banks plunged 40 percent after the Asian financial crisis. If this happens again, then BOCHK's share price will not be cheap even though it has dropped more than 60 percent from its peak of HK$24.10.

[winston]

BOC Hong Kong Profit Warning May Signal Worsening Bank Outlook By Hanny Wan

Dec. 13 (Bloomberg) -- BOC Hong Kong (Holdings) Ltd.'s first warning of an earnings drop since its 2002 initial share sale may foreshadow more profit declines by the city's banks.

BOC Hong Kong, the biggest bank by assets in the city, said yesterday parent Bank of China Ltd. will extend a $2.5 billion subordinated credit facility to strengthen the unit's capital base. BOC Hong Kong expects 2008 profit to ``decrease considerably'' as it writes down the value of its credit investment portfolio further, it said in a statement.

``It's a signal to the market that there could potentially be more local banks making further provisions for their toxic U.S. securities holdings,'' said Kenny Tang, executive director of Redford Securities Co. in Hong Kong.

The city's banks including Bank of East Asia Ltd., Hong Kong's third-biggest by assets, and Dah Sing Banking Group Ltd., have warned that the global financial crisis would damp profits. A collapse of the U.S. housing market and the lending freeze led global banks to post writedowns and losses of $987.6 billion.

``Everyone knows banks' earnings are going to look bad, but what bothers the market most is that nobody knows when all this is going to come to an end,'' Tang said.

BOC Hong Kong also said yesterday it will ``consider making provisions'' for its stake in Bank of East Asia. BOC Hong Kong, 66 percent owned by Bank of China, the nation's third-biggest by value, in June received a 660 million euro ($882 million) credit facility from its parent to be used to improve its ``capital base'' and develop its business.

Stocks Slump

More than $1.2 trillion has been wiped from Hong Kong's stock market since the beginning of this year, with the benchmark Hang Seng Index tumbling 47 percent. The city's home prices have fallen 22 percent since March, according to Centaline Property Agency Ltd. BOC Hong Kong has plunged 58 percent this year, closing at HK$9.10 yesterday.

``Bank stocks are going to be ugly on Monday. You would want to stay away from local banks,'' Tang from Redford Securities said. Mainland Chinese banks will be less affected due to support from the nation's loan growth, he said.

BOC Hong Kong booked a net impairment loss of HK$3.2 billion ($413 million) in the third quarter on U.S. credit investments, mainly related to non-agency securities backed by mortgages and senior unsecured debt issued by Lehman Brothers Holdings Inc.

The bank's investment in Hong Kong has suffered as the value of its 4.94 percent stake in Bank of East Asia has fallen. BOC Hong Kong bought the stake in November 2007 for HK$3.95 billion, or HK$51 a share. Bank of East Asia's shares have fallen 65 percent since the announcement, to close at HK$16.98 yesterday.

Bank of East Asia in October issued its first profit warning since it was incorporated in 1918, saying it would book an impairment loss of HK$3.5 billion this year after selling its entire portfolio of collateralized debt obligations.

[winston]

BOCHK in 4.73pc fall after profit warning by AlfredLiu

Bank of China (Hong Kong) (2388) shares bucked the upward trend in the broader market yesterday to dive as much as 6.48 percent.

This followed the first profit warning posted by the bank since its 2002 initial public offering, and a US$2.5 billion (HK$19.5 billion) capital injection by its parent, Bank of China (3988).

Shares in BOCHK fell 4.73 percent to close at HK$8.67, even as the benchmark Hang Seng Index gained 1.96 percent after rising 4.3 percent earlier.

Morgan Stanley downgraded BOCHK yesterday to "underweight" from "equal-weight," and slashed its target price for the mainland-controlled bank to HK$7 from HK$14.

Morgan Stanley expects BOCHK to post a HK$1 billion second-half loss this year.

It also estimates that the bank's 2009 earnings will be weak - 40 percent less than in 2007.

Merrill Lynch downgraded its investment rating on BOCHK to "neutral" from "buy," and lowered its target price for BOCHK by 17 percent to HK$12.50.

The investment bank said it has cut its full-year 2008 estimate of earnings forecast for BOCHK by 75 percent to HK$2.4 billion, which implies the bank will report a loss of HK$4.7 billion in the second half.

BOCHK said Friday it expects net profit for the year ending December 31 to decrease considerably from a year ago, due to impairment allowances of HK$3.2 billion made against its investment securities and further writedowns in the value of its investment book.

BOCHK will raise US$2.5 billion through a subordinated credit facility extended by its Beijing-based parent as financial assistance.

"Potentially, losses in investment book are much higher than our revised expectations," Morgan Stanley said.

"This move clearly creates an overhang on book value."

BOCHK will also consider making provisions for its investments in Bank of East Asia (0023).

BOCHK bought a 4.94 percent stake in BEA in November 2007 for HK$3.95 billion, or HK$51 per share.

BEA issued a profit warning in October because of losses on collateralized debt obligations.

[winston]

Mainland roots to fuel gains

Today let us look at BOC Hong Kong (Holdings) (2388), which has been in the news for the past few weeks.
BOCHK announced a profit warning for 2008. Afterwards, it received a US$2.5 billion (HK$19.5 billion) credit facility from its holding firm, Bank of China (3988).

Top brokerage houses - Morgan Stanley and Goldman Sachs - were not impressed. Goldman put a target price of HK$9.50 on it as it was worried about the bank's high exposure to China's mortgage market and its large equity portfolio. But both Standard & Poor's and Fitch reaffirmed the credit ratings of BOCHK.

Dr Check is also optimistic about this bank with its nearly 300 branches. The bank is planning a capital injection, after which its capital adequacy ratio will rise to about 17 percent.

This may slip to around 15 percent if it needs to write off - as some brokerage houses estimate - a further HK$15 billion for losses on its equity investments.

BNP expects the bank to distribute HK$0.43 as a final dividend for 2008 even if there is a writeoff .

BOCHK will reveal its 2008 results in March. By then we can expect at least a 5 percent upside in the stock. Why? If Hong Kong becomes the first place overseas where transactions can be settled in yuan, then, banks with strong China roots like BOCHK will benefit a lot.

It is definitely in a better position than local rivals to develop yuan- denominated loan, fixed-income and trade finance products.

The stock fell from last week's high of HK$9.92 to HK$8.40 yesterday before slightly recovering to close at HK$8.51. It is likely to hover between HK$7 and HK$10 in the short term. Closer to HK$8, the bank is certainly worth more than just a cursory glance.

Dr Check and/or The Standard bear no responsibility for any investment decision made based on the views expressed in this column.

[winston]

Bank of China not seen any RBS notice to sell-report

SHANGHAI, Dec 30 (Reuters) - Royal Bank of Scotland (RBS.L) has not expressed any intention to sell the Hong Kong-listed shares of Bank of China (3988.HK) as a lock-up period expires this month, the Oriental Morning Post reported on Tuesday.

The newspaper cited Bank of China spokesman Wang Zhaowen and noted that if the British bank wished to sell the shares, it had to ensure price stability.

According to the terms of the contract, BRS must inform Bank of China one month ahead of any planned share sale, but the Chinese lender has not received such notice yet, the Chinese-language newspaper said.

Reuters could not immediately reach Bank of China for comments.

The report came amid talks that RBS, hit by the global financial crisis, was considering reducing its stake in Bank of China to increase liquidity.

In July, the Financial Times reported that RBS had ruled out any sale of its stake in Bank of China, as it remained committed to its relationship with China's second-largest lender.

[winston]

DJ MARKET TALK:BOC, BOC HK Susceptible To Further Writedowns -UOB

1116 [Dow Jones] UOB KayHian tips Bank of China (3988.HK), BOC Hong Kong (2388.HK) as susceptible to further writedowns on U.S. mortgage-backed securities in 4Q08, 1H09 after results from Citigroup, RBS. Says could lead to equity fund-raising. Notes BOC has US$18.9 billion in mortgage-related products on books, around 2% of total assets; 66%-owned BOC HK surprised market with HK$2.149 billion impairment allowance on U.S. MBS in 1H08; also 3Q08 impairment allowances of HK$3.199 billion on U.S. non-agency MBS, senior unsecured Lehman debt.

Says BOC extended US$2.5 billion subordinated credit facility to BOC HK in December; "This will strengthen BOC Hong Kong's capital base to weather the economic uncertainties. However, this could also signal that BOC Hong Kong needs more capital to absorb more losses from its portfolio of U.S. mortgage-backed securities." Rates BOC at Hold, fair price HK$2.45; doesn't rate BOC HK. BOC up 0.5% at HK41.88; BOC HK down 3.7% at HK$7.81.

[winston]

Rumor that BOCHK may buy AIG's Asian assets...

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DJ MARKET TALK: BOC HK FY08 Earnings Set To Disappoint -Citigroup

0908 [Dow Jones] STOCK CALL: BOC HK (2388.HK) FY08 earnings likely to miss estimates as provisions for U.S. MBS portfolio will likely be larger than market expectations, Citigroup says. Tips FY08 net profit down 73% at HK$4.26 billion. Says 4Q08 MBS provisions need to reflect both decline in MBS values, but also reclassification of securities to impaired status; estimates 4Q08 MBS values fell 10% on-quarter; expects FY08 provisions of HK$11.3 billion for MBS, BEA (0023.HK) stake, Lehman.

Expects NIM continued to contract in 4Q08, continuing 1Q-3Q08 trend. Says fee income likely weaker than expected on shrinking stock brokerage commissions. Lowers FY08E earnings forecast by 50% mainly on BEA, U.S. MBS provisions. Says valuations do not appear expensive at 1.0X FY09E P/B, but tips disappointment risk going into FY08 result. Rates at Sell, target price at HK$8.30. Shares closed yesterday down 2.2% at HK$7.99

[winston]

March 24 (Reuters) - Year ended December 31, 2008 (in million HK$ unless stated)
Shr (H.K. cents) 31.62 vs 146.09
Final Div (H.K. cents) nil vs 48.7
Net 3,343 vs 15,446
Net interest income 20,157 vs 19,395

BOC Hong Kong (2388.HK), a unit of state giant Bank of China, is Hong Kong's second-largest lender by assets after HSBC (0005.HK) (HSBA.L). The calculation of share earnings is based on the weighted average of 10,572.78 million shares in issue during the two
years. Total dividend for the year is 43.8 H.K. cents (including interim dividend of 43.8 cents) vs 91.5 cents.

The consensus (mean) forecast, according to a poll by Reuters Estimates, was for net profit of HK$6.31 billion for the year.