VZCZCXRO2230
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #1801/01 2700940
ZNR UUUUU ZZH
R 260940Z SEP 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 5896
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 HONG KONG 001801 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: BEA RUN ENDS, LEHMAN MINIBOND COMPLAINTS GATHER STEAM 
 
REFS: A) HONG KONG 1790, B) HONG KONG 1776, C) HONG KONG 1757 
 
¶1.  SUMMARY: Support from the Hong Kong Government, Bank of China 
(Hong Kong) and tycoon Li Ka-shing appear to have put an end to the 
run on Bank of East Asia (BEA).  BEA Chairman David Li put cash 
withdrawals at less than one percent of BEA's total deposits. 
Holders of Lehman Bros.-issued "minibonds" continue to press their 
case through political parties, with the Democratic Party, 
Democratic Alliance for the Betterment of Hong Kong (DAB), and the 
Civic Party all organizing minibond investors to petition the 
government.  Inflation was stable in August, but slow export growth 
could portend harder times ahead for Hong Kong firms.  Property 
stocks led all Hong Kong equities down again, the Hang Seng Index 
closed down 1.3 percent at 18,682.  End Summary. 
 
BEA Depositors draw down HKD 2 billion 
 
¶2.  BEA Chairman David Li confirmed to the media this morning 
(September 26) that depositors have withdrawn about HKD 2 billion 
from the bank over the past two days, accounting for 0.67 percent of 
the bank's total deposits of HKD 300 billion.  Li emphasized that 
the bank's operations have returned to normal in all branches.  He 
said all 17 board directors have reconfirmed their support for BEA; 
at least two tycoons, Henderson Land Development Chairman Lee 
Shau-kee and Sun Hung Kai Properties Vice Chairman Thomas Kwok, have 
indicated interest to join Cheung Kong Holdings owner Li Ka-shing in 
increasing their stakes in the bank. 
 
Beijing says BEA's Mainland operations run well 
 
¶3.  The China Banking Regulatory Commission (CBRC) joined in the 
chorus of support for BEA saying that the bank's Mainland operations 
are stable and healthy; the CBRC echoed the Hong Kong Monetary 
Authority's support for BEA.  Headquartered in Shanghai, BEA China 
has a network of 57 outlets that includes 17 branches and 39 
sub-branches in Shanghai, Shenzhen, Xiamen, Guangzhou, Zhuhai, 
Dalian, Xi'an, Beijing, Chengdu, Hangzhou, Chongqing, Qingdao, 
Shenyang, Wuhan, Nanjing, Tianjin, and Urumqi.  Bank of China Hong 
Kong, which owns a five percent stake in BEA, said yesterday it 
would support BEA and closely monitor its situation. 
 
BEA share prices stabilized in the morning 
 
¶4.  After a 7 percent plunge on Wednesday and 3.4 percent rebound on 
Thursday, BEA share prices stabilized today, though Hang Seng Index 
lost 1.3 percent or 252.34 points to close at 18682.09.  The three 
Mainland banks that received support from CIC earlier in the week 
(ICBC, BOC HK and CCB) also saw prices fall by 1-3 percent.  While 
there is no way to track how many BEA shares Li Ka-shing, Lee 
Shau-kee and Thomas Kwok have actually purchased over the past two 
days, it appears that BEA depositors found the public support of the 
three tycoons more reassuring than announcements from Hong Kong 
Chief Executive Donald Tsang and HKMA Chief Executive Joseph Yam. 
 
¶5.  Short-term liquidity eased after HKMA's decision to inject HKD 
3.88 billion (USD 500 million) in the interbank market yesterday. 
HIBOR overnight and one week rates, quoted by Hang Seng Bank at 4pm, 
were 1.50 percent and 2.25 percent respectively, compared with 1.75 
percent and 3.50 percent yesterday. Three month HIBOR also dropped 
to 3.35 percent from yesterday's 3.75 percent. 
 
Lehman "minibond" holders may not lose everything 
 
¶6.  Ming Pao September 26 said HSBC, the trustee bank for the 
controversial Lehman "minibonds," might demand a liquidation of the 
minibonds by October 8.  This would be two weeks after Lehman failed 
to honor the dividend payout scheduled for September 21 on one of 
its minibonds.  Lehman minibond-holders in Hong Kong might have a 
chance to get some money back if HSBC is able sell the back-up CDO 
assets in the market. 
 
¶7.  Newly elected Legislative Council member Paul Chan, representing 
the Accountancy functional constituency, urged Secretary for 
Financial Services and the Treasury KC Chan, HKMA and the SFC to 
bring the financial institutions involved in the selling and 
distribution of the minibonds to the table to negotiate a plan to 
alleviate the losses of inexperienced and innocent investors misled 
by what he portrayed as unscrupulous bank sales officers.  Newly 
elected Civic Party legislator Tanya Chan confirmed that her party 
would also be meeting with aggrieved minibond holders, following in 
the wake of the Democratic Party and the DAB.  Minibond-holders 
reportedly plan to take to the street on Sunday to voice their 
grievances against the Hong Kong government's failure to properly 
supervise the distributor banks. 
 
Hong Kong's export trade growth drops to 1.9 percent in August 
 
¶8.  According to trade statistics released September 25 by the 
Census and Statistics Department, Hong Kong's total exports 
 
HONG KONG 00001801  002 OF 002 
 
 
increased by only 1.9 percent from a year ago.  Re-exports were up 
2.7 percent and Hong Kong domestic exports down 17.1 percent.  Hong 
Kong's exports to the U.S. in August dropped by 4.6 percent while 
imports from the U.S. in August went up by 21 percent, confirming 
anecdotal reports from port operators that trade flows have shifted. 
 A Hong Kong government spokesman said that export performance has 
fluctuated over the past few months, reflecting "a highly uncertain 
external environment." 
 
¶9.  Hong Kong's inflation rate for August fell to 4.6 percent as the 
government's one-off administrative measures took effect. 
Discounting these factors leaves the inflation rate stable at 6.3 
percent for August, the same as in July.  Food price increases 
slowed, but were still up by 17 percent y-o-y.