The Asian bank reported a drop in 2015 profits, prompting a shareholder activist that has already called for the business to be sold to renew its demand.

Hong Kong-headquartered Bank of East Asia has reported a 17.1 per cent year-on-year drop in profits attributable to owners, at HK5.522 billion ($670 million), as the bank has been affected by slowing growth in China. The results prompted a shareholder activist group targeting the bank to renew its call for the firm to be sold.

BEA said in a statement yesterday that return on average equity fell by 3.0 percentage points from 9.6 per cent to 6.6 per cent, caused partly by an increase in the weighted average number of shares in issue as a result of the subscription of 222.6 million new ordinary shares by SMBC in March 2015.

The lender said all of its major group entities recorded an increase in net interest income with the exception of BEA China, where net interest income shrank by 20 per cent to HK$1.195 billion.

The net interest margin at BEA China dropped from 2.20 per cent in 2014 to 1.82 per cent in 2015, largely due to the interest rate cuts made by the People’s Bank of China and lower asset yields given BEA China’s reduced risk appetite. 

The results gave few figures on the bank's wealth management segment. However, in commentary about the results, Dr David Li, chairman and chief executive, made some reference to wealth management: “We will also further enhance our wealth management business, optimise our deposit structure to further lower the cost of funding, and increase treasury activities by broadening the range of treasury products we offer.” He said the bank is looking to complete the sale of Tung Shing Holdings and BEA Wealth Management Services (Taiwan).

Shareholder demands
A shareholder group that has been lobbying for the bank to be sold reiterated its harsh view of BEA’s strategy. The group is called Elliott and holds a 7 per cent stake in the bank. BEA trades on a price/earnings multiple of 8.29 times earnings, below a financial sector average of 12.9 (source: Reuters). 

“Elliott is unsurprised by today’s disappointingly predictable announcement by the BEA board,” the group said. It claimed that BEA’s board was “still resolutely closed-minded as to providing BEA’s owners with the only realistic route to meaningful returns, which would come from conducting an auction process to explore the possibility of a sale of BEA". 

It added: “The BEA board’s references to future business and operational initiatives are too little, too late. This is simply not a credible or workable solution to the years of mismanagement and persistent poor performance at BEA – as today's results announcement...underlines so clearly. Nothing which the BEA board has said today changes our view that the incumbent board cannot deliver proper value for BEA’s shareholders - enough is enough, and the board should now move forward by starting an auction process to explore the possibility of a sale of BEA." (To see a previous story about this group's campaign, see here.)

Dr Li’s own statement referred to calls for the bank to be sold but did not mention Elliott by name. “We note that a shareholder has proposed that the bank be put up for sale. The board has considered this suggestion thoroughly and strongly agreed that, while the idea may serve the short-term interest of one shareholder, it does not serve the interests of the bank’s shareholders as a whole. Nor is it in line with the long-term, sustainable business that this bank is building,” he said.