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Hong Kong Banks Hit by Protests -- 2nd Update

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09/29/2014 | 12:12pm CEST
By Enda Curran 

HONG KONG--Hong Kong banks shut branches, suspended some services and activated contingency plans on Monday as pro-democracy protests gripped several parts of the city.

Businesses across the city activated backup plans to deal with the disruption from thousands of protesters who have gathered in locations throughout downtown Hong Kong in key business and shopping districts and across Victoria Harbour in parts of Kowloon.

Standard Chartered Bank PLC, HSBC Holdings PLC, Bank of East Asia Ltd., Bank of China Hong Kong and China CITIC Bank International Ltd. were among those who said their operations were affected by the protests. The banks said they were temporarily closing branches or shutting off services in affected locations.

By early Monday, 17 banks had closed 29 branches, offices or cash machines across the city.

Other companies in the financial sector were also affected. KPMG LLG advised its 1,800 employees in its Central and Causeway Bay offices to work from home, according to a spokesman. Central, the main business district in Hong Kong, and Admiralty, where the government offices are located along with the shopping district of Causeway Bay have been focal points for gatherings by the protesters.

Accounting firm Ernst & Young LLP said it has put in place a contingency plan in which employees can work in an office away from the central business district, or work from home.

BlackRock Inc., the world's largest money manager, told any nonessential employees to work from home Monday, according to people familiar with the matter. BlackRock is located in Hong Kong's Cheung Kong Center, which is close to the main protest area. Fellow money manager Fidelity Worldwide Investment is operating "business as usual," according to a spokeswoman.

Stocks in the city began falling after the market opened. Hong Kong's benchmark Hang Seng Index fell as much as 2.5% in early trading Monday, but retraced some ground later.

Hong Kong, a former British colony which returned to Chinese rule in 1997, operates independently from the mainland and has thrived as a financial center over the years, especially as a gateway to China. But bankers and traders said that if the pro-democracy protests continue, the contingency planning by financial institutions, which includes allowing staff to work from home, may not be enough to cope with severe disruption in one of the world's biggest financial hubs.

Hong Kong's reputation as a key hub for global capital entering Asia could be hurt if the protests worsen, said Philippe Espinasse, a former investment banker in the city who now writes on banking and finance.

"At the end of the day, the markets are all about confidence and sentiment," Mr. Espinasse said. "Investors very much like visibility and certainty and could therefore become concerned about the stability of the market if the situation deteriorates significantly," he said.

The Hong Kong Monetary Authority, the city's de facto central bank, said it has activated its own contingency plan and is ready to inject liquidity into the banking system. The HKMA said it expects the city's money markets to operate as normal.

"The banking sector has ample liquidity and does not experience any tight conditions," the HKMA said in a statement late Monday.

Charles Li, chief executive of Hong Kong Exchanges & Clearing Ltd., which operates the city's stock exchange, said trading is proceeding as usual and while there will be some volatility in the short-term, the exchange has contingency measures to deal with a variety of scenarios.

Shares in real-estate firms with large retail property portfolios were particularly hard hit Monday by worries that the disruption in Hong Kong would take a toll on tourism numbers from China this week, the start of the mainland's National Day "golden week." Millions of visitors from China, especially through tour groups, usually come to shop in Hong Kong this week.

"Hong Kong asset prices are bound to drop, and the Hong Kong dollar is already suffering," analysts at Crédit Agricole wrote in a note to clients on Monday.

The Hang Seng Index closed down 1.9% at 23,229.21, hitting its lowest level in 2 1/2 months, led by sharp declines from real-estate developers and shopping-mall operators.

Companies that count on China's Golden Week holiday for increased traffic were hit hard. Beauty-products retailer Sa Sa International Holdings Ltd. fell 3.1% to HK$5.31. Clothing-retailer IT Ltd. tumbled 5.6% to HK$2.69.

Blue-chip shares of Wharf (Holdings) Ltd., one of the city's major office and retail landlords, fell as much as 6.2% during the session. It pared losses by the close of trade, settling with a 3.8% loss at HK$55.20. New World Development Co. fell 4.6% to HK$9.19 and Cheung Kong (Holdings) Ltd. lost 3.7% to HK$129.70.

In London trading, HSBC Holdings PLC fell 1.8% and Standard Chartered PLC was down 2%.

The Hong Kong dollar, which operates under a linked exchange rate regime with the U.S. dollar, slipped to a six-month low against the greenback in early trading before recovering some ground.

The financial sector waded into the debate over planned protests in June when the Big Four accounting firms--Ernst & Young, PricewaterhouseCoopers, Deloitte LLP and KPMG--took out an ad in local Chinese-language media expressing worries about possible disruption.

The same month, two of Hong Kong's biggest lenders, HSBC and Standard Chartered, drew the ire of democracy protesters over claims they pulled millions of dollars of advertising from the Apple Daily, a popular Hong Kong newspaper known for its tendency to criticize China.

Andrew Colquhoun, Head of Asia-Pacific Sovereigns at Fitch Ratings said Hong Kong faces two key questions, namely whether the city can resolve its political issues so there is a government that commands "basic popular consent to implement economic and structural policies" and whether "the political standoff eventually impacts domestic and foreign perceptions of Hong Kong's stability and attractiveness as an investment destination."

"But those questions will likely be answered over months or years rather than days," he added.

Yvonne Lee, Chao Deng, Mia Lamar, Gregor Hunter and Anjani Trivedi contributed to this article.

Write to Enda Curran at [email protected]

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