Bank of China Profit Falls 59%

Fourth-Quarter Drop Shows How Dismal Global Investment Affects the Nation's Big Lenders

SHANGHAI -- Bank of China Ltd. posted a 59% slump in fourth-quarter net profit as its overseas investments were hit by the global financial turmoil.

Associated Press

President Li Lihui said the bank's purchase of a 20% stake in Cie. Financiere Edmond de Rothschild will likely be approved by Chinese regulators soon.

Full-year profit at the smallest of China's Big Four banks rose 14%, but the drop at the end of the year, after a 32% gain in the first nine months, gave an indication of how the weakening domestic economy and a deteriorating global investment climate are affecting Chinese banks.

Despite the setback, the bank said expanding beyond its home market remains key to its development strategy.

The state-run bank said 2009 will likely be tougher for it because of the slowdown in the domestic economy and its exposure to overseas markets.

Bank of China, which has the biggest investment in U.S. subprime securities of all Asian financial institutions at $2.59 billion, said it had set aside $2.25 billion to cover potential investment losses at the end of last year.

Reuters

President Li Lihui said the bank's purchase of a 20% stake in the French private bank Cie. Financière Edmond de Rothschild will likely be approved by Chinese regulators soon. 

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The original Dec. 31 deadline to complete the deal passed without a blessing from authorities in China, so Bank of China has extended the cutoff to March 31. Analysts said Beijing hasn't approved the purchase because of concerns about investment risks amid global financial volatility, though they said a deal with Rothschild could provide Bank of China expertise in asset management as well as distribution in Europe.

The bank's fourth-quarter net profit fell to 4.42 billion yuan ($646.8 million) from 10.77 billion yuan a year earlier.

Net profit for the full year rose to 64.36 billion yuan from 56.25 billion yuan in 2007.

The 14% full-year gain lagged the 40% rise in net profit at Bank of Communications Co. because of Bank of China's larger exposure to overseas assets.

Royal Bank of Scotland Group PLC and UBS AG have both sold their stakes in Bank of China in recent months, removing an overhang on the Chinese lender's stock.

Hong Kong-listed shares of Bank of China have gained 12% since the start of the year, beating the 6.4% rise in China Construction Bank Corp. Stock in Industrial & Commercial Bank of China Ltd. has fallen by 13%.

China's $200 billion sovereign-wealth fund marginally increased its stake in the state-run bank to 67.52% at the end of last year. Singapore's Temasek Holdings owns a 4.13% stake in Bank of China.

—Rose Yu, Amy Or and Aries Poon

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