HONG KONG, DEC. 17 -- The largest bank in Hong Kong announced today it is transferring all assets offshore, a move that is likely to damage confidence in the British colony reverting to Chinese rule in 1997.
Hongkong and Shanghai Banking Corp. Chairman William Purves said the decision reflected the bank's global reach and did not signal abandonment of the territory where it has flourished for 125 years. "We shall remain headquartered in the territory, which is an important and profitable market for us," Purves said.
Nonetheless, stock brokers and others with a feel for Hong Kong's financial pulse said the move would be interpreted as another sign of eroding confidence in the future of the teeming capitalist enclave on China's southern tip. Under a historic agreement between China and Britain, the Chinese have promised to preserve Hong Kong's way of life for at least 50 years after the British lease expires in 1997.
But faith in China's pledge has been shaken in the past year by the crackdown on a pro-democracy movement in Beijing and bickering between China and Britain over the exact terms of the takeover agreement. Many Hong Kong residents who have the financial means have sought visas to emigrate, and a number of important businesses have restructured to protect their assets offshore in case the Sino-British accord falters.
One broker, speaking on condition of anonymity, said the Hongkong and Shanghai Bank announcement, which transfers the bank's assets to a British holding company, "leaves the impression that the British are pulling out." Chinese authorities had no immediate comment on the move by the bank. Brokers noted that the decision will create the unique situation of a major financial institution that operates in some ways like a central bank being owned by a company based abroad.
The bank, for example, issues more than half of the currency and functions as the main check-clearing bank in Hong Kong. Its hidden reserves are believed to be worth more than $2 billion.
Under the plan, the bank will rename its Silom Ltd. subsidiary to HSBC Holdings Ltd. HSBC Holdings will then be transformed into an umbrella company, owning Hongkong and Shanghai Bank and all its holdings.
Silom, which managed the bank's land holdings in Thailand, is based in Hong Kong but registered in Britain.
In addition, the bank's subsidiary operations in North America, the Middle East and Europe, which account for about 30 percent of its assets, will be stripped from the bank and taken over by the holding company directly. Those subsidiaries include the New York-based Marine Midland Bank, Hongkong and Shanghai Bank of Canada and the British Bank of the Middle East. The bank's subsidiaries in Asia will remain directly controlled by Hongkong and Shanghai Bank.
Shareholders will receive one share of stock in the holding company for every four shares in bank stock.
Purves said the bank's decision, made at a recent board meeting, would have to receive formal approval during a shareholders' meeting scheduled in February.
The chairman said the decision to reorganize the bank was made following numerous questions from investors and regulators overseas.
"Hongkong Bank believes that concerns on their part, although perhaps understandable in the light of the unprecedented future constitutional status of Hong Kong, are misplaced," he said. "However, the concerns of the people outside Hong Kong who deal with the group cannot be ignored."