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.
