Bank of China shares fall 6% amid sub-prime concerns

Shares of Bank of China Ltd. plunged 6% in Hong Kong trading early today, after the company said it held almost $9.7 billion of securities backed by U.S. sub-prime mortgages, the most reported by any Asian bank.

“Bank of China disclosed numbers that no stockholders wanted to hear,” Warren Blight, a Hong Kong-based analyst at Fox-Pitt Kelton Ltd., said in a research note.

The company’s report was another indication of how securities backed by U.S. sub-prime loans -- mortgages made to people with dicey credit -- have been purchased by investors around the globe.

As defaults rise on those loans, investors face as-yet undetermined losses.

Bank of China, the nation’s second-largest, said sub-prime bonds accounted for 3.5% of its securities portfolio, and that collateralized debt obligations, a more complex type of bond investment, accounted for 0.3%.

The company said it set aside 1.15 billion yuan ($152 million) against possible losses on bonds and other sub-prime-backed securities.

Bank of China said the provision was adequate because the bulk of its investments were rated A or higher. Chairman Xiao Gang also said the bank had made “adjustments” to its sub-prime holdings since June.

CLSA Asia-Pacific Markets analyst Dominic Chan today cut Bank of China to “sell” from “outperform,” citing its larger-than-expected sub-prime debt.

Industrial & Commercial Bank of China said Thursday that it had $1.2 billion of sub-prime-related securities, or 4.3% of its foreign-exchange investment portfolio.

The sub-prime disclosures overshadowed the banks’ reports of stronger-than-expected first-half earnings growth.

Industrial & Commercial’s shares were off 1.2% early today in Hong Kong.

Don Straszheim, a China expert at Roth Capital Partners, said the banks’ holdings were “non-threatening” but may slow China’s move to liberalize its financial sector.