Hong Kong's banking sector has been hit hard by the fallout from the Lehman mini bond crisis

It has been almost a year since Lehman Brothers, the US investment bank, collapsed last September.　　The controversy over Lehman's mini-bonds, issued by Lehman, has yet to show clear signs of abating. According to an earlier estimate by the liquidator, Ernst and firm, when the assets of Lehman were thawed, the trustee, HSBC Holdings (00005.HK), sold the mortgaged assets in cash of HK $6.7 billion. If, in recent months, individual banks have proposed to repurchase the "Lehman mini bonds" held by investors by 60% per cent of their sales, banks will have to pay a settlement of HK $7.5 billion, which, if deducted from the proceeds from the sale of assets, would have to be accounted for about HK $800 million and would not have a significant　　But Lehman's debt scandal has posed a reputational risk to banks. While this is only a one-off outlay, for individual banks, especially small banks, the amount of repurchase "Lehman mini bonds" will be a serious blow to its 2009 net profit.　　According to our conservative estimate, if the asset value of Lehman's debt is only 40% of its nominal value (less than 54% of the earlier estimate by Ernst and the firm), the biggest impact was on the net profit of Daxin Bank (02356.HK), Fubon Bank (00636.HK) and Chong Hing Bank (01111.HK) in 2009. Large banks have a wider profit base and suffer less impact. With the support of a large branch network and customer base, large banks have developed new businesses, such as the "Cross-border renminbi trade settlement" service, which has some advantages, plus the government's leadership in providing credit guarantees to SMEs and increasing the security.　　With the government's encouragement, large banks such as HSBC, Hang Seng Bank (00011.HK), Standard Chartered Bank (02888.HK) and Bank of East Asia (00023.HK) have been lending more aggressively. Although BOC Hong Kong (02388.HK) is the largest distribution bank in Hong Kong, accounting for 35% of the overall market, net profit is less sensitive to the amount of compensation than small banks. Assuming that the repurchase scheme was implemented this year and calculated in 60%, Fubon bank profits would have recorded the biggest decline of more than 50% per cent, by market estimates, with a net profit of HK $13 billion in 2009.　　If the distribution bank is eventually accused of selling back to investors in full, as a result of bad sales, Fubon's losses will be as much as 1.5 times times that of earnings, while the full-year earnings of dah Sing bank and Chuang Hing Bank will be dragged down by about 50%. In addition, if governments ' stimulus policies work, the global economic recovery will be faster than expected, with inflation rising, pressure on central banks to raise interest rates, and large banks as the main lenders to benefit from future interest rate hikes.　　As a result, we expect that the business of large banks will be brighter than that of small and medium sized banks in terms of policy-driven, mergers or natural growth, and valuations are more attractive than those of the Hang Seng Bank in 2010, which is only 1.3 to 1.6 times times higher than that of the other big banks. Information link It is estimated that the sale in Hong Kong"Lehman mini bonds" amounted to HK $12.5 billion, which was sold through 16 distribution banks in Hong Kong respectively. The industry said: mini-bonds are actually structured products that contain credit-default swaps (credit-linked note), credit-linked notes. As a result, the value of these credit-related contracts fell after the financial tsunami broke out. Due to the differences in product structure, some of the value of the debt has disappeared, but some of the better quality of the portfolio behind the asset is valuable. (Tangsun)