VZCZCXRO1438
PP RUEHCN RUEHGH RUEHVC
DE RUEHHK #1790 2691149
ZNR UUUUU ZZH
P 251149Z SEP 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC PRIORITY 5885
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS HONG KONG 001790 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: EFIN ETRD ECON HK CH
SUBJECT: RUN ON BEA BANK SLOWS; HONG KONG TO INVESTIGATE 
LEHMAN BONDS 
 
REF: HONG KONG 001776 
 
¶1. Summary:  Following reassuring comments by Hong Kong Chief 
Executive Donald Tsang and other key government and bank 
officials regarding the Bank of East Asia (BEA), public 
sentiment has calmed a bit today.  Depositors continued to 
line up at BEA branches to withdraw their savings on 
September 25, but the numbers were not as great as 
yesterday's run on the bank (Reftel).  Controversy continues 
over the Lehman Brother's "mini-bond" instruments, with the 
Hong Kong Security and Futures Commission (SFC) announcing it 
will launch formal investigations to determine if 
misrepresentation or disclosure irregularities occurred in 
their sale.  End Summary. 
 
BEA Mini-Bank Run Continues for another Day 
------------------ ----------------------- 
-------------------- 
 
¶2.  Despite reassurances made by Hong Kong Chief Executive 
Donald Tsang, Financial Secretary John Tsang, and Hong Kong 
Monetary Authority (HKMA) Chief Executive Joseph Yam on 
September 24 and again on the morning of September 25, 
depositors continued to line up at BEA branches on September 
25 to withdraw cash, though in significantly fewer numbers 
than the day before.  Directly addressing the mini-run on BEA 
for the first time at a morning news conference, the Chief 
Executive called on Hong Kong's citizens to stop listening to 
rumors and assured them Hong Kong,s banking system was 
healthy and secure.  Speaking at a morning trade fair, 
Financial Secretary John Tsang again reiterated support for 
BEA and again stated that the bank does not have liquidity 
problems and has not requested Hong Kong Monetary Authority 
(HKMA) assistance.  In response to this and similar comments, 
BEA shares were up 3.4 percent at market close, after 
dropping 6.85 percent the previous day. 
 
¶3.  The HKMA announced at 0930 HRS local time that it had 
injected HKD 3.883 billion  (USD 500 million) in the 
inter-bank market, anticipating that short-term liquidity 
might be tight as other HK banks tried to keep more cash on 
hand for the time being.  The Hong Kong Inter-Bank Rate 
(HIBOR) for overnight and one week as of 1203 HRS local time 
on September 25 had dropped .25 percentage points to 1.75 and 
3.50 percent respectively. 
 
Formal Investigations into Lehman Retail Notes 
---------------------------- 
---------------------------------- 
 
¶4.  Responding to Financial Secretary John Tsang's statements 
on BEA, the Hong Kong Security and Futures Commission (SFC) 
announced on the evening of September 24 that it would 
commence formal investigations into allegations that Lehman 
Brothers-related retail structured notes might have been 
misrepresented to investors.  SFC CEO Martin Wheatly said in 
the statement SFC would &examine whether any facts, matter 
or circumstances that should have been disclosed to the SFC 
were not disclosed by the minibond-issuers and their 
advisers.8  At the same time, the SFC will respond to 
grievances received by customers and conduct formal 
investigations into allegations of inappropriate sales by 
certain (unnamed) intermediaries. 
DONOVAN