At least three large Chinese commercial banks have disclosed their exposure to the worsening US financial crisis through bonds issued by investment bank Lehman Brothers, which has filed for Chapter 11 protection.
China Merchants Bank Wednesday said in a statement to the Shanghai Stock Exchange that it holds US$70 million of Lehman Brothers bonds, of which US$60 million is senior debt and the rest subordinated debt.
The bank also said it has not made special provisions for the book losses on those bonds and will evaluate their potential risks and disclose further details at a later date.
According to the Xinhua News website, Industrial and Commercial Bank of China (ICBC), the country's largest State-controlled commercial bank by assets, holds US$151 million in bonds issued by, or linked to, Lehman Brothers.
At press time, ICBC had not issued a statement to the Shanghai bourse to specify its exposure to Lehman Brothers.
Bank of China (BOC) was also affected by the failure of Lehman Brothers. BOC holds US$75.62 million in bonds issued by the ailing US investment bank. It also loaned US$53.2 million to Lehman Brothers and its subsidiaries. BOC was reportedly listed as an unsecured creditor in documents filed by Lehman Brothers at the United States Bankruptcy Court of the Southern District of New York.
Lehman Brothers, the fourth largest investment bank in the United States, filed for Chapter 11 protection after efforts to find a buyer collapsed last Sunday.
Rising concern about the ripple effect of the deepening US financial crisis plus the gloomy outlook for China's banking sector has pushed down the prices of Chinese commercial banks' shares in the past two trading days.
Shares in China Merchants Bank Wednesday dropped 9.96 percent to 14.47 yuan apiece. With its 11 percent plummet on Tuesday, China Merchants Bank has fallen a total 18.9 percent over the past two trading days.
Bank of China has dropped a total of 14.8 percent from last Friday to close at 2.97 yuan. Its Hong Kong-listed H shares also fell 4.6 percent Wednesday to HK$2.9.
China Construction Bank Wednesday plunged 10.09 percent to end at 3.83 yuan, while its H shares also tumbled 8.15 percent to HK$4.73.
The latest 27-basis-point cut to the benchmark lending rate plus the unchanged deposit rate is expected to squeeze bank earnings by narrowing the interest spread.
Jing Ulrich, chairwoman of China equities at JPMorgan Securities, Wednesday told China Daily: "As China's financial market is not fully opened yet, the problem of Lehman Brothers is expected to have only an indirect impact on China's financial sector. An individual Chinese bank's exposure to the US financial crisis should be seen in the context of its total assets."
(China Daily September 18, 2008)