VZCZCXRO9393
RR RUEHCHI RUEHCN RUEHDT RUEHGH RUEHHM RUEHNH RUEHVC
DE RUEHHK #2198 3401144
ZNR UUUUU ZZH
R 051144Z DEC 08
FM AMCONSUL HONG KONG
TO RUEHC/SECSTATE WASHDC 6394
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS HONG KONG 002198
SIPDIS
STATE FOR EAP/CM AND EEB/OMA, TREASURY FOR OASIA
E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD HK CH
SUBJECT: Lawsuits, Layoffs and Interest Rate Hikes in Hong Kong
1. Summary: The Hong Kong Association of Banks has reportedly
suggested postponing plans to buy back Lehman minibonds, while a an
American law firm has contacted Hong Kong investors, offering to
explore the possibility of filing a class action lawsuit in the U.S.
against HSBC. Financial Secretary John Tsang and Secretary for
Financial Services and the Treasury KC Chan continued to press for
completion of a buyback agreement. HSBC and Bank of China (Hong
Kong) raised mortgage interest rates to generate additional cash
flow; Standard Chartered Bank, and CITIC Ka Wah Bank confirmed
lay-off plans designed to cut costs. Hong Kong television station
TVB also announced significant layoffs. Government calls for
private enterprise to remember their social responsibilities and
avoid cutting staff appear to have fallen on deaf ears. The Hang
Seng dropped 42 points for the week on thin trading. End Summary
Buyback Plan Scrapped? Investors Plan US Lawsuit
2. A December 5 report in the pro-Beijing Wen Wei Po said that the
Hong Kong Association of Banks had canceled its scheduled meeting
with government representatives. A spokesman for the Hong Kong
Association of Banks told Wen Wei Po that the buyback plan could be
postponed "indefinitely." The Association continues to seek advice
from its legal counsels and hopes to propose amendments to the
current proposal. Retail banks involved in marketing minibonds are
reportedly not willing to take the "unlimited risks" that the
government plan would require.
3. The Hong Kong Economic Times reported that HSBC USA is also
seeking legal advice as it seeks to understand its obligations as
the trustee institution in possession of the assets underlying the
minibonds. Democratic Party Legco member James To told Ming Pao
reporters that a group of American lawyers have contacted the
Democratic Party, hoping to collect information to assist a class
action lawsuit against HSBC USA for failure to adequately perform
its duties as trustee. A spokesman of the Alliance for the Lehman
minibond holders confirmed to the press Friday afternoon that the
Alliance is planning to hire American lawyers to file a class action
against HSBC USA.
HSBC and BOC(Hong Kong) Raise Mortgage Rates
4. HSBC and Bank of China (Hong Kong) raised mortgage rates on new
residential properties by 50-75 basis points to 3.5-4.0 percent,
despite the declining cost of funds in recent weeks. Analysts
believe the banks are seeking to boost their cash intake in the face
of expected declines in fee income over the next several months.
November property transactions in Hong Kong were the lowest since
the mid-1980s, just 3700, compared to a normal average of closer to
10,000 transactions per month.
5. Needless to say, the HSBC and BOC (HK) move was not welcomed by
real estate developers or agents. Two leading real estate
developers continued to express confidence in the Hong Kong's
property sector. New World Chairman Cheng Yu-tung said property
prices in Hong Kong would not drop significantly in 2009, while Sun
Hung Kai Properties Vice Chairman Thomas Kwok said he expects a 5
percent rise in Hong Kong's property prices in the coming year.
While these estimates may be overly optimistic, property analysts
note that Hong Kong's property market and developers are in far
stronger positions than during the Asian Financial Crisis when
property values dropped by 70 percent.
Banks and Others Announce More Layoffs
6. Standard Chartered Bank and CITIC Ka Wah Bank have confirmed
plans to lay off additional employees. Hong Kong TVB, a free-to-air
TV station owned by tycoon Sir Run-Run Shaw, fired over 200 staff
early this week. Early this week, Financial Secretary John Tsang
again called upon major employers to remember their social
responsibilities during the economic downturn as he briefed Legco
members on Hong Kong's economic prospects. The Financial Secretary
reassured Legco that the government would create 7,000 new jobs in
the next three months - presumably through expanded maintenance and
public works projects and initiatives to support SMEs.
Hang Seng Index Down 42 points for the Week
7. The Hang Seng Index closed at 13,846.09 on Friday, December 5,
up 2.5 percent or 336.31 points from Thursday's closing. Daily
trade was a meager HKD 37 billion. The Index lost 42.15 points for
the week. Market analysts believe that the Hang Seng Index could
stabilize at the 13,000-14,000 level if there is no additional bad
news coming out before Christmas, but predicted trading would
continue to be weak as the Christmas and New Year's holidays
approach. HIBOR on Friday, December 5, was 0.2 percent for
overnight, 0.3 percent for 1-W, 1.2 percent for 1-M and 1.78 percent
for 3-M.