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CONFIDENMALI
BUELVED IN APOISSY JL.
20 OCT 1983
INDEX
FM HONG KONG 23084OZ SEP 83
TO IMMEDIATE FCO
TELEGRAM NUMBER 1427 OF 28 SEPTEMBER
AND TO IMMEDIATE HONG KONG GOVERNMENT OFFICE LONDON, CG NEW YORK, WASHINGTON, BRUSSELS, UKMIS GENEVA
FOR HONG KONG GOVERNMENT REPRESENTATIVES.
REF: HKG/GT/36
SUBJECT: HANG LUNG BANK
AT AN EXTRAORDINARY SITTING OF THE LEGISLATIVE COUNCIL ON 27
SEPTEMBER A BILL WAS PASSED, AND SUBSEQUENTLY ASSENTED TO BY THE GOVERNOR, PROVIDING FOR THE ACQUISITION BY THE HONG KONG
GOVERNMENT OF THE HANG LUNG BANK, WHICH IS A LOCAL BANK HAVING 23 BRANCHES. THUS, THE BANK OPENED FOR NORMAL BUSINESS TO-DAY
UNDER GOVERNMENT OWNERSHIP, UNDER A NEW BOARD CHAIRED BY THE
SECRETARY FOR MONETARY AFFAIRS AND WITH A SENIOR MANAGEMENT
TEAM FROM THE HONG KONG AND SHANGHAI BANKING CORPORATION.
2. THIS ACTION FOLLOWS 12 MONTHS OF UNCERTAINTY OVER HANG LUNG
BANK. IN SEPTEMBER 1982 THERE WAS A SHORTLIVED RUN ON THE BANK,
APPARENTLY SPARKED BY UNFOUNDED RUMOURS ABOUT AN ALLEGED ASSOCIATION
WITH A FAILED JEWELRY COMPANY. A MONTH OR SO LATER THE BANK WAS
AGAIN UNDER ATTACK AS A RESULT OF THE FAILURE OF A DEPOSIT-
TAKING COMPANY, DOLLAR CREDIT AND FINANCING, WITH WHICH THE BANK
HAD CLEAR LINKS. EVER SINCE, THE POSITION HAS BEE FRAGILE.
3. THE GOVERNMENT WAS IN CLOSE AND CONTINUOUS TOUCH WITH
DEVELOPMENTS AND SEVERAL CONFIDENTIAL CONTINGENCY PLANS WERE
DRAWN UP. THE PROBLEM FACING HANG LUNG WAS THAT AT HAD A HOST
OF NON-PERFORMING LOANS ON HTS BOOKS, FOR WHICH BAD MANAGEMENT WAS CLEARLY VERY LARGELY TO BLAME: MEANWHILE, IT HAD DIFFICULTY RECOVERING CUSTOMER DEPOSITS THAT HAD BEEN LOST LAST YEAR: AND
OTHER BANKS WERE NOT WILLING TO EXTEND CREDIT TO IT.
4. MATTERS CAME TO A HEAD YESTERDAY, WHEN HANG LUNG REPORTED THAT
IT WAS UNABLE TO MEET ITS LIABILITIES IN RESPECT OF CHEQUES DRAWN
BY CUSTOMERS. THE GOVERNMENT TOOK THE VIEW THAT IT WOULD BE UNACCEPTABLE, 80TH DOMESTICALLY AND INTERNATIONALLY, TO ALLOW THE BANK TO FAIL, AND THUS ACTED SWIFTLY WITH ITS CONTINGENCY ACQUISITION PLAN. THE ROUTE WAS TAKEN BECUASE IT WOULD HAVE BEEN
WRONG TO PUT PUBLIC MONEY INTO A COMPANY OVER WHICH THE GOVERNMENT
HAD NO CONTROL, AND IN THE PRESENT OWNERSHIP OF WHICH THE GOVERNMENT
HAD NO CONFIDENCE.
CONFIDENTIAL
ILINE
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