Chinese Whispers
Misinformation can be a dangerous thing – particularly in an environment of high sensitivity and minimal confidence in the banking sector.
Hong-Kong’s Bank of East Asia (BEA) recently suffered a Northern-Rock-like run on its branches after thousands of people received SMS text messages, warning of an imminent collapse and urging them to flock to the bank’s outlets to empty their accounts.
The speed at which text messages and websites began to alert people and the subsequent reaction of the public suggests banks are particularly vulnerable at present to any negative news.
The whole banking industry relies on confidence, confidence that what is borrowed by individuals or entities is largely repaid, and what is lent is largely repaid with interest.
Once trust is lost, the whole system is at risk of imploding like a house of cards.
In the case of Bank of East Asia, ironically the fear was seeded by one of the major ratings agencies, Moodys’ Investor Services.
Yes the same Moodys’, which, along with its heavyweight ratings competitors, failed so abysmally in correctly assessing the risks inherent the collateralised debt obligation market a year ago.
Now it appears the ratings agencies are more willing to slap a negative rating on an institution - in BEA’s case for US$12million lost by a rogue equities trader.
Hong Kong’s richest man, the billionaire Li Ka-shing, who knows a thing or two about getting a good deal wasn’t too irked by the Moodys’ rating as he swooped to acquire a decent chunk of the bank’s stock after the market pushed it stock price down.
One Comment on “Chinese Whispers”
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Jack says:
You will like this article Jack. Would you have taken your money out or bought more shares in the Bank?