VZCZCXRO6875
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #1833 2761028
ZNR UUUUU ZZH
R 021028Z OCT 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 5936
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS HONG KONG 001833 
 
SIPDIS 
 
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Hang Seng Unimpressed by Rescue Bill, HKMA Measures Push 
HIBOR Down 
 
REFS: A) HONG KONG 1823, B) HONG KONG 1801 
 
¶1. Summary: Though the U.S. Senate approved the market rescue bill 
before the opening of the Hong Kong Stock Exchange trading day, 
local investors remained cautious.  The Hang Seng Index failed to 
make a strong rebound.  The five new measures implemented by Hong 
Kong Monetary Authority (ref A) to increase the market liquidity 
pushed the Hong Kong Interbank Overnight Rate (HIBOR) below 2 
percent but the one month rate still topped 4 percent. Share prices 
of Hang Seng Bank, a wholly-owned subsidiary of HSBC, plunged 9 
percent today as the bank admitted its exposure to Washington Mutual 
Bank's senior debt but refused to disclose the exact amount. 
 
Market Rescue Bill Passage Expected 
 
¶2.  Hong Kong investors learned of the U.S. Senate's overwhelming 
passage of the market rescue bill prior to the opening of the Hong 
Kong Stock Exchange.  But the Senate approval, which was widely 
expected, did not lead to a strong rebound for the Hang Seng Index. 
The Hang Seng Index opened 140 points lower than Tuesday's close 
(Wednesday was a national holiday) and lost as much as 385 points 
before rebounding.  Increased buying in the late afternoon spurred 
investors to speculate on further gains.  At market closing, the 
Hang Seng Index was up 1.08 percent or 194.90 points, closing at 
18211.11.  Daily trade totaled HKD 70 billion.  Market gossip 
attributed the increased activity to investors seeking regional 
plays.  With China's market's closed for one week during the Chinese 
National Day, Hong Kong is the next best option. 
 
Hang Seng Bank down 9 percent on WaMu exposure 
 
¶3.  Hang Seng Bank, a wholly-owned subsidiary of HSBC, surprised the 
market today by admitting that it had some exposure to Washington 
Mutual Bank securities.  Hang Seng Bank CEO Raymond Or had recently 
reassured investors that the Bank did not invest in structured 
products as he found them "too sophisticated."  Nervous investors 
dumped Hang Seng stock when the Bank declined to disclose the exact 
amount of its exposure.  A bank spokesman told English-language 
newspaper The Standard (October 2) that "if deemed necessary, we 
will make appropriate disclosures in accordance with regulatory 
requirements."  Hang Seng Bank closed at HKD 131.60, down 8.8 
percent.  Hong Kong Monetary Authority (HKMA) officials told the 
press that the Hong Kong banking sector's total exposure to 
Washington Mutual Bank was about 0.05 percent of the total assets. 
 
 
HIBOR softens but one and two month rates top 4 percent 
 
¶4.  HKMA's five new measures to increase liquidity for the interbank 
market (Ref A) successfully checked the HIBOR overnight rate from 
rising above two percent.  At 4 pm, HIBOR, as quoted by Hang Seng 
bank, was 1.75 percent for overnight, 3.00 percent for one-week, 
3.50 percent for 2-week, 4.28 percent for one-month, 4.05 percent 
for two-month, 3.80 percent for three-month, and  3.65 percent for 
six-month borrowing.  Market observers speculated that the one-month 
and two month rates might ease as foreign banks, short of Hong Kong 
dollars, begin to utilize the HKMA discount window.  Citibank 
macroeconomist Joe Lo told the press that the HKMA measures had the 
potential to weaken the Hong Kong dollar exchange rate since foreign 
banks in Hong Kong might no longer need to sell US dollars into the 
spot market to boost Hong Kong dollar liquidity. 
 
HKMA receives 3500 Lehman Minibond complaints 
 
¶5.  Secretary for Financial Services and the Treasury K.C. Chan told 
the press October 2 that the Association of Banks in Hong Kong will 
establish a special task force to resolve investor complaints 
surrounding the Lehman "minibonds."   As of October 1, the Hong Kong 
Monetary Authority had received 3,500 complaints from investors 
alleging they were deceived or misled about the risk profile of the 
Lehman-issued "minibonds."  At a meeting with Lehman "minibond" 
distributors, brokers and trustees, KC Chan urged the banks to 
devote additional resources to handle the complaints.  Several media 
outlets reported that some distributor banks, including DBS and Dah 
Sing, have begun to negotiate a settlement with purchasers of the 
Lehman products. 
Donovan