HONG KONG (AFP) — Shares in Bank of China (BOC) fell sharply Monday on reports it might post lower profits or even a loss when announcing 2007 results in April, due to writedowns on struggling subprime investments.
The bank may announce a significant writedown on its 7.95 billion US dollars of investments in securities linked to US subprime mortgages, the South China Morning Post reported Monday, citing unnamed mainland banking sources.
Senior banking regulators have already warned the mainland leadership that BOC, as well as the Industrial and Commercial Bank of China and China Construction Bank, would have to make provisions for all their subprime-linked assets, the report added.
BOC spokesman Wang Zhaowen declined comment on the report.
Hong Kong-listed shares in BOC fell 4.7 percent in morning trade Monday on the report. At the end of the session, shares were off 0.17 dollars at 3.43.
BOC, which has the biggest reported subprime exposure among Chinese banks, posted a 45.5 billion yuan (6.3 billion US) net profit for the first nine months of 2007, 40 percent more than a year before.
In September, China's second-biggest bank said its portfolio of investments linked to the subprime market had been cut to 7.95 billion dollars from 9.65 billion dollars in August.
It set aside 322 million dollars for possible losses related to the assets.
However, subprime securities took a further hit in the fourth quarter, forcing several top US banks to post record losses for the period.
Lee Yuk-kei, an analyst Core Pacific-Yamaichi International, said he expects the bank to announce a writedown but still increase its profit over 2006.
"We estimate that BOC will have to set aside up to 2.0 billion US dollars for its subprime exposure for the whole of last year," Lee said.
"We expect BOC's 2007 earnings to grow 20 percent year-on-year to some 50 billion yuan, but the figure would obviously be much higher if not for the amount that it will have to set aside for its subprime investments."
Lee said he expected BOC to set aside an additional 6.0 billion yuan of provisions this year against its subprime exposure.
"This stock will likely come under selling pressure in the coming months as a result of investor worries that its performance will continue to be dragged down by the need to set aside more provisions," he said.
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