The Bank of East Asia Limited (HKG: 0023) is the largest independent local bank in Hong Kong by total consolidated assets with HK $411.9 billion (US $53.14 billion) and third largest bank by market value with HK $51.08 billion (US $6.6 billion). It provides retail, commercial and investment banking services through its international network of over 240 outlets spanning across parts of Asia, North America and Europe.
The 2008 Financial Crisis had significantly weakened BEA's financial position, causing the company to suffer impairment losses of HK $948 million (US $122 million) in 2008 and HK $493 million (US $63 million) in the first half of 2009. The majority of BEA's impairment losses were due to the company's concentrated portfolio of collateralized debt obligations (CDO), which lost almost all of its value during the crisis. After the disposal of these assets in the end of 2008, the company started to show signs of recovery such as an increase in operating profit by HK $811 million (US $104 million) to HK $1,417 million ($82 million) in the first half of 2009. 
In 2007 BEA became one of the first foreign banks to receive approval from the China Banking Regulatory Commission to establish a locally incorporated bank in China, thus leading to the creation of the wholly-owned subsidiary The Bank of East Asia (China) Limited. In 2008, BEA became the first foreign bank to launch Yuan-denominated credit cards in China. These achievements have allowed BEA to expand its presence in China. In 2009, 42.7% of the company's net interest income came from its operations in China, making its operations in China the single largest source of net income out of any of the company's business divisions.
The Bank of East Asia provides banking and related financial services, and business, corporate and investor services. BEA serves customers through a global network of over 240 outlets in North America, the United Kingdom, the British Virgin Islands, and Southeast Asia. The company operates more than 70 outlets in Mainland China. BEA delivers retail and commercial banking services through its Personal Banking, Corporate Banking, Wealth Management, Investment Banking, China, and International divisions. The products and services include deposit-taking, foreign currency savings, mortgage loans, consumer loans, credit cards, Cyberbanking, bancassurance, Mandatory Provident Fund services, trade finance, syndication loans, remittances, and foreign exchange margin trading.
The Bank of East Asia has an expansive international network of 240 outlets covering Hong Kong, Greater China, the United States, Canada, the United Kingdom, the British Virgin Islands, and Southeast Asia. It is traded on the Hong Kong Stock Exchange and one of the constituent stocks of the Hang Seng Index. Its ADR is also available Over the Counter (OTC) in the US market.  BEA's principal operations in which its derives the majority of its revenue are in consumer and commercial loans and deposits. Profits are determined by the size of loans and current market interest rates. Approximately 56% of the company's customer loans consist of loans outside of Hong Kong, which exposes the firm to fluctuating market conditions of other countries, most significantly, the United States and China.
BEA offers wealth management services in the form of investment funds such as the BEA Global Bond Fund, which invests in high-grade debt securities. The company also offers investment advisory services and derives revenue through fees charged for managing funds and providing advice on specific, individual investment opportunities. Its acquisition of AIG's Wealth Management Service (Taiwan) Limited helped to expand it clientele and provide more opportunities for providing services to the Greater China market. Electronic securities and futures trading is also offered through BEA's investment banking and Cybertrading services. Revenues are derived as fees per transaction, so BEA relies on a high volume trades to make substantial profits. Trading volume for futures in 2009 increased by 19% over the corresponding period in the previous year; however, the volume for securities trading has decreased 3% due to consumer reaction to market falls in 2008. 
First and Second Quarter 2010 Results
During the first half of 2010, BEA announced earnings per share of HK $0.95, compared to $0.64 in the year-ago period. The bank reported net profit for the first half of 2010 of HK $2,116 million, compared to HK $1,205 million in the first half of 2009. The bank reported interest income of HK $6,163 million, compared to HK $6,326 million in the first half of 2009. The bank's operating income was HK $5,412 million, compared to HK $4,951 million in the year-ago period.
|Annual income data, HK$millions||2004||2005||2006||2007||2008||Q1&2 2009|
|Total Operating Income||$5,496||$5,953||$7,564||$8,814||$6,457||$4,954|
|Total Consolidated Assets||$210,370||$238,799||$294,202||$393,979||$415,254||$411,857|
|Net Interest Income||$3,614||$3,760||$4,999||$5,977||$6,793||$3,234|
Lending costs for BEA have increased due to lowered interest rates and increased exposure to high risk loan assets. The central bank of China slashed the one-year benchmark interest rate for loans by 216 basis points to 5.31% and the rate for deposits by 189 basis points to 2.25%. This policy effectively lowers BEA's yield on interest income. BEA's cost to income ratio increased from 53.2% in 2007 to 89.5% in 2008 reflecting the increased operating costs associated with the decreased yield on interest earning assets which decreased from 6.6% in 2007 to 5.66% in 2008.
A combination of devalued security assets, losses from defaulted loans and decreased growth in lending services resulted in a decrease in total consolidated assets by HK$4 million from HK$415 million (US$ 53.55 million) in 2008  to HK$ 411 million (US$53.03 million) by the first half of 2009.
BEA’s revenues come from six main business segments. 
BEA’s offers its services outside of Hong Kong through its international network of outlets, branches and subsidiaries. BEA’s operations in China are run through its subsidiary, The Bank of East Asia (China) Limited. As of 2009, the bank operates 71 outlets in mainland China, giving it the second largest foreign branch network in China next to HSBC. Net interest income from operations outside of Hong Kong increased by 1.9% to HK$1799 million (US$232 million) by the first half of 2009 from HK$1,765 million (US$228 million) in the previous year. BEA’s growth is primarily dependent on its operations in China with 42.7% of the company’s net interest income in the first half of 2009 coming from the Mainland; however, the company experienced a slight decrease in revenues during the first half of 2009 due to increased competition from local Chinese banks, which, through the relaxation of loan quotas, gained greater capacity to service credit demand.
BEA’s operations in the United States are run through its subsidiary, The Bank of East Asia (U.S.A.) N.A. In 2009, the company expanded its operations in California and operates 13 outlets in the country with three located in New York, five in Los Angeles and five in San Francisco. Operating profit in BEA’s wholesale branches in New York and San Francisco grew by 175% and 65% respectively due to weakened competition from local US banks, many of which disappeared after the 2008 Financial Crisis. On June 4, 2009, BEA entered into a Share Sale Agreement with the Industrial and Commercial Bank of China Limited (ICBC) to divest a 70% interest in Bank of East Asia (Canada) Limited, giving the company access to ICBC’s extensive global network as well give BEA access to working capital from the divestment.
The Personal Banking division offers products and services such as deposit-taking, consumer and property loans, Cyberbanking and credit cards. Net interest income from personal banking services in Hong Kong increased by 6.77% to HK$899 million (US$116 million) as of June 30, 2009 from HK$842 million (US$109 million) in the previous year. The division was able to show positive earnings despite decreases in deposits by 1.7% from HK$329.3 billion at December 31, 2008  to HK$323.7 billion as of June 30, 2009 due to growth in loan transactions.
The value of residual property-related loan transactions have risen 5% during the first half 2009. The current market for mortgage business remains competitive, but BEA remains in a prominent position, ranking second in new mortgage loan originations in January 2009, and maintaining a ranking within the first five in the industry throughout the first half of 2009. 
The Corporate Banking division offers services in corporate and commercial lending. Net interest income from the division in Hong Kong increased by by 17.5% to HK$342 million (US$44 million) by the first half of 2009 from HK$291 million (US$37.5 million) in the previous year primarily due to a 6% increase in the value of industrial, commercial and financial loans used for property development and investment.
The Wealth Management division offers investment products and services in advisory and private banking. Net interest income in the first half of 2009 increased by 600% to HK$63 million (US$8.1 million) from HK$9 million (US1.2 million) due to the introduction of new initiatives in 2009 including the BEA Global Bond Fund, which invests in high grade debt securities, as well a campaign to promote BEA's fund investment services which included a range of new monthly subscription plans. Both initiatives were well received by clients because the initiatives were marketed as conservative low risk investments, thereby contributing to a rise of 23% in fund assets under custody.
BEA’s private banking business draws the majority of its clientele from the Greater China Region. The company’s acquisition of AIG Wealth Management Services (Taiwan) Limited in June 2009, will increase its client-base as well as enhance its ability to promote its wealth management services.
BEA's Investment Banking division offers its investment banking services through two of its wholly-owned subsidiaries: East Asia Securities Company Limited, which specializes in online securities trading, and East Asia Futures Limited, which operates as BEA's futures and options broking arm. The division is also responsible for equity investments and dynamic hedging of equity options through the use of funds from consumer deposits and the other sources of capital. BEA's disposal of its Collateralized debt obligation (CDO) portfolio contributed to a majority of the HK$493 million impairment loss registered in the first half of 2009. Net interest income from the division in the first half of 2009 decreased by 61.5% to HK$260 million (US$33.5 million) from HK$676 million (US$87 million) in 2008.
In addition to its banking services, BEA also generates revenue through its joint investment ventures and insurance products. Net income interest for these other operations decreased by 41% to HK$30 million (US$3.9 million) by June 30, 2009 from HK$51 million (US$6.6 million) in the previous year due to the devaluing of real estate related securities assets
The effects of the 2007 Credit Crunch and 2008 Financial Crisis resulted in BEA's greatest loss in history and first loss in over four decades. Deteriorating credit markets had increased BEA's costs of borrowing and devalued its real-estate related security assets and Collateralized debt obligations (CDO), causing the company to lose HK$948 million (US$122 million)  in impairment and trade losses 2008 and HK$493 million (US$63 million) in the first half of 2009.  The bank's weakened financial state caused substantial decline in consumer confidence, resulting in a bank deposit run in September 2008 in which an estimated 5% of deposits or HK$15 billion (US$1.94 billion) were withdrawn from the bank.  The company's share price also plummeted 61% over the 2008 year.
BEA's high loan-to-deposit ratio of 140% leaves the bank more exposed to risker debt than its mainland competitors, which on average have loan-to-deposit ratios of approximately 60%. The deterioration of credit asset quality in the slowing economy can significantly weaken BEA's financial position by subjecting the bank to greater risk of losses on nonperforming loans. 
BEA faces stiff competition from mainland banks in both the China and Hong Kong markets in 2009. From 2004 to 2008, BEA registered above industry loan growth due to an average Compounded annual growth rate - CAGR of 20% in property related lending and the bank's aggressive expansion in China. Loans to mainland China were responsible for 66% of growth in total loans and account for 35% of BEA's total loan portfolio in 2008. However, loans in China decreased by 6.5% to HK$80.17 billion in the first half of 2009 from HK85.7 billion in the corresponding period in 2008 due to growing consumer preference for more stable mainland Chinese banks and the increased capacity of these banks of service credit demand on the mainland.
Major Chinese banks such as the Bank of China and Industrial and Commercial Bank of China and act as BEA's primary competitors in the Mainland. After the People's Bank of China, the country's central bank, monetary authority and financial regulator, relaxed loan quotas in 2009 to boost China's slowing domestic economy, major Chinese banks gained the opportunity to expand lending services. Since these banks have on average a loan-to-deposit ratio of 60%, they have far greater capacity than BEA to service increased credit demand. Their high loan-to-deposit ratio also lower their risk of facing possible liquidity problems, so large corporations in China are more willing to borrow from them instead of BEA.
In September 2008, BEA along with other Hong Kong banks were facing liquidity problems as a result of the 2008 Financial Crisis and were reluctant to lend to each other. This reluctance caused the HIBOR or Hong Kong Interbank Offer Rate to increase dramatically, subsequently increasing borrowing costs for banks. Only after the Hong Kong government announced that it would guarantee Hong Kong bank deposits up to any amount until 2010 did confidence in Hong Kong banks increase and the HIBOR return to lower levels. The Hong Kong government's announcement also had the effect of restoring some consumer confidence in the bank.
The monetary policy implemented by the People's Bank of China significantly shapes BEA’s growth in China. The primary objective the central bank is to promote domestic growth, which leads it to pass policies that mainly benefit local Chinese banks over foreign banks, which puts BEA at a disadvantage when compared to its mainland competitors. The People's Bank has set the requirement that BEA must lower its loan-to-deposit ratio to 75% by 2012. This requirement set by the Chinese government has the impact of effectively increasing costs of issuing loans for BEA because it will have to match every dollar it issues in loans by $1.33 in deposits. 
China's monetary policy has also allowed BEA to be the only foreign bank to raise capital through the issuance of Yuan-denominated bonds, giving the bank an advantage over foreign competitors when solving problems of liquidity. The bank was able to raise 4 billion yuan (US$586 million) in July 2009 alone, giving it
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