HONG KONG, Feb 17 – Hong Kong\’s Bank of East Asia said on Tuesday its 2008 net profit fell 99 percent compared to the previous year, as it sold off a huge chunk of toxic assets at the centre of the global credit crunch.
Net profit at the lender fell from 4.14 billion Hong Kong dollars (531 million US) in 2007 to just 39 million last year, the company said in a statement to the Hong Kong Stock Exchange.
"The financial tsunami that swept over the global economy in September 2008 has left a bleak economic landscape in its wake," said chairman and chief executive David Li.
"This has led to a sudden and sharp plunge in new business for local and regional companies and the unprecedented scale of the decline is destined to have a significant impact well into 2009."
Net interest income rose from 5.98 billion Hong Kong dollars in 2007 to 6.79 billion.
But the company booked a non-interest loss of 336 million Hong Kong dollars compared to a profit of 2.84 billion in 2007, after it sold or wrote-off a huge chunk of toxic securities.
The bank said in October it expected its 2008 profits to be slashed by 3.5 billion Hong Kong dollars after it disposed of its entire portfolio of collateralised debt obligations (CDOs).
CDOs are complex financial products often linked to US mortgage debt. Their value has collapsed in the past year as US borrowers have struggled to repay loans during a drop in the American housing market and the wider economy.
BEA said in the statement it had "faced the challenge with decisive action, disposing of or writing down to zero value its entire CDO portfolio."
As a result, it entered 2009 with a "strong balance sheet" and no further exposure to the CDO market.
Li said BEA would refocus on its traditional banking business, and look to continue its expansion on the Chinese mainland.
The poor results were the latest setback for Hong Kong\’s fifth largest lender by assets.
In September, savers launched a short-lived run on the bank, following the spread of text message rumours that BEA was overexposed to assets linked to collapsed US investment bank Lehman Brothers and troubled insurer AIG.
BEA said Tuesday there had been no long-term effect from the bank run, and said it had acted "forcefully and quickly" to prevent a wider fallout.
Li, who is a prominent Hong Kong tycoon and legislator, stepped down from the city\’s cabinet in February after he was accused by US regulators of insider trader involving shares of financial news company Dow Jones.
At the time, Li denied any wrongdoing and said he paid a civil penalty of 8.1 million US dollars to avoid a drawn-out court battle and to protect his family and businesses.
BEA, which has more than 130 branches in Hong Kong and 60 outlets in China, is the first of the Hong Kong\’s major banks to report what is expected to be a bleak set of 2008 results for the sector.
The financial hub\’s biggest bank, HSBC, is scheduled to release its annual results in early March.