Hong Kong Financial News

There is another bank going down after the fall of Lehman Brothers? It does seem plausible after all; otherwise there won’t be hundreds of people lining up in different branches of Bank of East Asia (BEA) (23) in Hong Kong to get their deposits back.

Management at BEA vehemently deny that that they are short of capital. Their total asset is around HK$ 400 Billion, and the amount of Lehman bonds that they own is only HK$ 400 million, that is only 0.1% of their total asset.

Negative news seems to surround BEA lately. Last week (18 September) it was reported that an employee inside the bank (another Jerome Kerviel!) had hidden a loss of HK$ 93 million in derivatives trade.

These days, in bear market, it is really easy to bring some well known names down from rumors. People are getting more risk-adverse and they will want to be safe and avoid anything that has any sign of risk (no matter how small it is). In fact, I am under the opinion that Bear Stearns went down because of rumours spread by short-sellers saying that Bear’s balance sheets  have problems. Because of this rumor, banks and hedge funds exited trades with them and stopped providing funding with them. With no new funding, there was no liquidity and Bear was gone!

Although Hong Kong people are very receptive to this type of rumor, just pray that the Hong Kong people are more logical and the financial system in Hong Kong is robust enough to sustain this type of shock.

September 25th, 2008 | Tags: 23, Bank of East Asia, Bear Stearns, liquidity, rumors | Category: Companies | Leave a comment

What a week. Lehman is bankrupt, Merrill is sold to Bank of America, AIG is more or less government owned, Russian stock market was closed three times during the week, China up 10% yesterday. It is definitely a roller coaster ride.

At least now that the short term problem is gone: Financial stocks are back up: most big banks are up 20% - 50% yesterday. The US markets was up 3-4% on both Thursday and Friday.

On the other hand, this time the peace comes from an unprecedented intervention from governments all over the world. The US government selectively bail out AIG but not Lehman, FSC in the UK prohibits short selling in financial stocks, Chinese government pouring in money to buy shares of Chinese banks.

Where is the spirit of free market? It seems like Marx is actually right: capitalism will actually lead to destruction. Even the US, supposedly the freest market of the world, is practising some type of modified communism. For the protection of the proletariat, since there are so many people in the US having AIG insurance policies, the US has decided to step in and offered a loan of US$85 billion and the government has an option to own 80% of the new AIG.

We can definitely see that the financial world is becoming more regulated from now on…

September 20th, 2008 | Tags: AIG, capitalism, financial turmoil, lehman, marx, socialism | Category: General Trends | Leave a comment

U-right, similar to Bossini (592) or Giordano (709), is an apparel retailer, but focusing more to the lower income group of people. Surprisingly the trading of U-right’s shares was halted abruptly at 10:24 am yesterday and the last traded price was $0.014. At the beginning of 2008, the shares were trading at $0.25.

Its share price has dropped more than 90% this year and according to Basis Point, there was a meeting held last week by the creditors who are concerned about the big decline of U-right’s share price.

This is indeed a death spiral. A lot of the small caps have dropped more than 70% this year. Then banks become very concerned about the company and as a result few banks pull out the loans or credit facilities they have with these small companies. Without adequate funding, the share price drops further and more banks become more concerned and ask the small companies to repay. Without enough cash, what can they do? They will fold.

As banks can stop providing supports for reputable names such as Lehman Brothers and AIG, it is not surprising to see that banks can easily pull out funding from a no-name company like U-right. R.I.P.

September 19th, 2008 | Tags: 627, illiquidity, liquidity, U-right | Category: Companies | Leave a comment

Webb-site.com, by David Webb, has posted an article on Peace Mark this morning. One surprise is that Peace Mark and EganaGoldpfeil (48) are related. EganaGoldpfeil was a public company whose former directors were implicated for racketeering, falsifying accounts charged in 2006 and 2007.

The report mentioned some suspicious points from Peace Mark’s 2008 annual report that are worth clarifying:

• Deposits to ”business associates” of HK$ 327.8 million (They said it’s a deposit, but it is just an unsecured loan to some unknown business associates!)
• Investment in unlisted funds (HK$ 40 million was invested in an unlisted open-ended investment fund managed by professional investment managers” - very vague again!)
• Loans to share incentive scheme (Peace Mark would lend money to its employees, suppliers, customers, and advisers to buy Peace Mark shares at a discounted price)
• Share options for non-employees (even customer and professional advisers can receive Peace Mark options!)

Sounds quite shady! For details, you can go to http://www.webb-site.com/articles/peacemark.htm

September 16th, 2008 | Tags: 304, David Webb, Peace Mark, Webb-site.com | Category: Peace Mark | Leave a comment

Ferrier Hodgson starts to have a good year this year. The next day after they were appointed as liquidator for Peace Mark, they have also another deal: Swimwear manufacturer Tack Fat Group (928) has voluntarily appointed Ferrier Hodgson as their liquidator. Tack Fat has outstanding loans totaling about HK$ 1.1 Billion.

Their story is kinda bizarre. They have released a company announcement on Wednesday saying that two of their executive directors have resigned. In the announcement they provided a resignation letter which unfolds a juicy story.  Below is what Tommy Lam, Yick Sing, assistant to the chairman wrote in his resignation letter:

On 17th August, 2008, in the execution of my duty, I attended the plant at Shajiang, Shenzhen with
a view to understanding the operation of the plant and the indebtedness position of the company.
I was held in custody by a group of people claiming to be officials from the local court. I could
only escape from their clutches after my Hong Kong friend using his contact in Security Bureau.
Since the incident, I have been suffering serious post traumatic stress disorder syndrome.

It sounds too much like a movie! And now, sources said that the company chairman, “King of Swimwear”, Kwok Wing, has fled to Cambodia. Maybe he has lots of friends and assets there, but I feel bad for him if he will need to spend the rest of his life there.

September 13th, 2008 | Tags: 928, Ferrier Hodgson, King of Swimwear, Kwok Wing, Lam Yick Sing, Tack Fat, Tack Fat Group, Tommy Lam | Category: Companies | Leave a comment

Ferrier Hodgson (Rod Sutton, Vincent Fok) has been appointed as provisional liquidator for Peace Mark. This is no surprise as one could easily imagine that it is extremely hard to reach consensus among big and small creditors which totals more than 40.

One interesting quote from the various news reports is that there was “absolutely” a chance of rescuing the company. One may wonder how “absolute” the chance will be…

September 12th, 2008 | Tags: 304, absolutely, Ferrier Hodgson, liquidator, Peace Mark, provisional liquidator, Rod Sutton, Vincent Fok | Category: Peace Mark | Leave a comment

Bad news continues to surround Peace Mark (304).  Bank of East Asia China has just seized three Peace Mark stores in China (one in Taiyuan, and two in Guangzhou). As a domino effect, banks, one after another, most likely will seek action against Peace Mark and will bring the Company into liquidation.

With all the bad news surrounding the company: the credibility of the management getting tarnished, the seizing of stores, repayment of loans being demanded by creditors, it seems to me that the chance of a white knight appearing to rescue the company is getting slimmer every day.  It just surprises me that a growing company with good prospect can be brought down literally in weeks simply because of a precipitous drop in the company’s share price.  I really wonder what is the actual reason of the drop. Is it just panic selling in a bear market?

September 11th, 2008 | Tags: 304, liquidation, Peace Mark, stores, white knight | Category: Peace Mark | Leave a comment

According to Ming Pao, after CVC’s pulling out from the bidding of Peace Mark, Peace Mark is currently in talks with Carlyle for new equity injection.

On the other hand, there are more questions on the credibility of the management. The announcement from Peace Mark last Wednesday revealed that A-One (the vehicle owned by Chau and Leung, the biggest shareholders) has pledged 131 million shares (30% of A1’s holdings) to other people. Furthermore, JP Morgan released a research report on Friday saying that they have wrongly believed the management.

Two months ago Peace Mark still had a good future ahead: they are a leading luxury watch manufacturer and retailer in the growing Chinese market. Now they are in dire situation, waiting for rescue from their white knight. Now Peace Mark’s credibility is put in test: will Peace Mark be able to pass Carlyle’s due diligence process at the end and become one of Carlyle’s portfolio companies?

September 9th, 2008 | Tags: 304, Carlyle, credibility, CVC, JP Morgan, Peace Mark | Category: Peace Mark | Leave a comment

Lots of HK stocks have been down for quite a lot since this year. It is not hard to find a stock that has gone down 30% to 50% this year. And last week, even big name stocks like China Communications Construction (1800) was getting washed out — it was down around 10% in one day.

Are people capitulating? The market sentiment is definitely not good. But it seems like at least the first stage of bear market has passed and gone - people are no longer thinking that stocks will rebound and they will sell immediately once the stocks are rebound. People are finally believing that they are losing money.

What a change in sentiment from last year to this year!

September 8th, 2008 | Tags: 1800 HK, bear market, China Communications Construction, HSI | Category: General Trends | Leave a comment