CONFIDENTIAL
110513
MDHIAN 196
VIEW OF POTENTIAL BUYERS' NATURAL APPREHENSION OVER POSSIBLE
HIDDEN LIABILITIES OF THE INSTITUTIONS, A SALE WITHOUT A GOVERNMENT IDEMNITY IS HIGHLY UNLIKELY IT IS ALMOST CERTAIN, THEREFORE, THAT THE INSTITUTIONS WILL HAVE TO BE LIQUIDATED.
M
5. CLEARLY LIQUIDATION WILL TAKE SOME TIME. IN THE NORMAL COURSE OF EVENTS, THE DEPOSITORS AND CREDITORS COULD NOT EXPECT TO RECEIVE ANY DISTRIBUTION OF CASH FOR MONTHS, IF NOT YEARS. IN ORDER TO PROVIDE SOME IMMEDIATE RELIEF TO DEPOSITORS AND CREDITORS, ARRANGEMENTS ARE BEING MADE WITH THE LIQUIDATOR TO MAKE AN EARLIER DISTRIBUTION TO CREDITORS OF 25 PERCENT OF THEIR NET CREDIT BALANCE WITH THE INSTITUTIONS, SUBJECT TO A MAXIMUM PAYMENT OF HKD500,000 PER CREDITOR. THE FINANCE COMMITTEE OF
LEGCO ACCEPTED ON 19 JULY THE CONTINGENT LIABILITY ARISING FROM THE PROVISION OF AN IDEMNITY TO THE LIQUIDATOR COVERING ALL HIS LIABILITIES ARISING FROM THE EARLY DISTRIBUTION SCHEME. WE EXPECT THAT EARLY DISTRIBUTION CAN TAKE PLACE NEXT WEEK.
6. SOME OF THE INSTITUTIONS' DEPOSITORS REACTED STRONGLY TO THE DECISION TAKEN TO SUSPEND THE BUSINESS OF THE INSTITUTIONS. THEY WERE PARTICULARLY UPSET WHEN THE DECISION TO LIQUIDATE THE INSTITUTIONS WAS ANNOUNCED ON 17 JULY. SKIRMISHES BETWEEN THE POLICE AND DEPOSITORS PROTESTING OUTSIDE THE LEGCO BUILDING BROKE OUT ON THAT AFTERNOON, BUT ORDER WAS QUICKLY RESTORED. SEVERAL PROTESTERS WERE ARRESTED BY THE POLICE.
7. FOLLOWING THE CLOSURE OF THE INSTITUTIONS, A NUMBER OF SMALLER LOCAL BANKS MET WITH HEAVY WITHDRAWALS. TWO BANKS (INTERNATIONAL BANK OF ASIA AND DAO HENG BANK) WERE UNDER PARTICULARLY HEAVY PRESSURE ON 16 17 JULY. HOWEVER, WITH GOVERNMENT STATEMENTS THAT THESE BANKS WERE SOUND AND VIABLE, SUPPORTIVE STATEMENTS FROM SHAREHOLDERS AND ASSURANCE THAT LIQUIDITY SUPPORT WOULD BE PROVIDED BY THE EXCHANGE FUND, WITHDRAWALS GRADUALLY SUBSIDED ON 18 JULY AND THEIR BUSINESS RETURNED TO NORMAL ON 19 JULY.
8. WE HAVE REASON TO BELIEVE THAT SOME PEOPLE WERE SPREADING RUMOURS EARLY THIS WEEK WITH A VIEW TO DESTABLISING OUR BANKING SYSTEM. WE HAVE TRACED SOME PAMPHLETS SENT THROUGH THE MAIL ALLEGING THAT A NUMBER OF BANKS, INCLUDING IBA AND DAO HENG, WERE IN FINANCIAL TROUBLES AND ENCOURAGING DEPOSITORS TO WITHDRAW THEIR DEPOSITS. WE ARE NOW LOOKING INTO THIS TO SEE WHETHER THERE IS ANY EVIDENCE FOR TAKING LEGAL ACTION.
WILSON
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CONFIDENTIAL