Chapter 571: Big Sharks Snatch the Feast

The Hong Kong government's intervention has caused a massive shock to the banking industry in Hong Kong.

First, Henglong Bank and Jiahua Bank were forcibly taken over by the Hong Kong government. The Zhuang and Liu brothers were restricted from leaving the country, and the Financial Services Authority intervened to start auditing the two banks.

Only after the Financial Services Authority confirms that the Zhuang and Liu brothers have not been involved in financial fraud or asset misappropriation can they regain their personal freedom.

Although the Hong Kong government has taken over the two banks, the bank run triggered by these banks has spread to small and medium-sized banks throughout Hong Kong. Many elderly citizens recall the bank runs from over a decade ago.

The bank run crisis that began with Liao Chuangxing Bank in 1961 persisted, and in 1965 and 1967, large-scale bank runs erupted again. The 1960s are considered a dark period for Hong Kong's banking industry, with many banks collapsing and numerous depositors losing their savings.

The current bank runs caused by Henglong Bank and Jiahua Bank are no less severe than those in the past.

Many older citizens are explaining the bank runs from over a decade ago to younger citizens, causing widespread panic in Hong Kong. The number of people going to small and medium-sized banks to withdraw money is increasing.

Seeing this situation, Chief Executive Mike Leung continuously urges Financial Secretary Xia Dingji to expedite the investigation of the two banks.

Unexpectedly, before the investigation is completed, news breaks out that Xie Li Yuan Gold Shop has run out of funds.

Xie Li Yuan Gold Shop is a famous gold trader in Hong Kong, founded in 1867, and has been in business for over a century.

A few years ago, Xie Li Yuan Gold Shop launched the "Thousand-Carat Gold Savings Plan," engaging in gold futures trading. Citizens could open gold accounts and trade gold at the prices set by Xie Li Yuan Gold Shop.

Since Xie Li Yuan Gold Shop was already engaged in gold trading, the gold futures purchased by citizens could be directly exchanged for real gold, which gave citizens strong confidence in Xie Li Yuan Gold Shop. As a result, the plan quickly became popular in Hong Kong.

However, after the paper gold business was launched, Xie Li Yuan Gold Shop diligently bought gold on the international market. But over time, Xie Li Yuan Gold Shop became complacent, mismanaged, and misappropriated funds, leading to a lack of large-scale gold reserves.

Additionally, with the recent surge in international gold prices, Xie Li Yuan Gold Shop suffered severe losses.

Fortunately, it managed to cover up the problem well, and citizens did not notice any issues.

Unfortunately, when Henglong Bank and Jiahua Bank's gold futures business exploded, triggering the bank run, many citizens immediately thought of their paper gold and rushed to Xie Li Yuan Gold Shop for redemption.

With no large-scale gold reserves and limited liquidity, Xie Li Yuan Gold Shop's funds quickly ran out when faced with customers waving paper gold certificates, resulting in its closure and refusal to redeem.

Following Henglong Bank and Jiahua Bank, another gold shop is on the brink of bankruptcy. The already fragile nerves of the citizens tighten once more, and more people rush to withdraw their deposits from banks. The heads of various banks curse Xie Li Yuan Gold Shop for their role in the crisis.

The number of victims petitioning the Hong Kong government increases again. Mike Leung is furious and has tax department personnel dispatched to investigate and regulate Xie Li Yuan Gold Shop.

On the fourth day, March 17, Xie Li Yuan Gold Shop, the smallest player, announces its bankruptcy, and the century-old enterprise collapses.

At the Jiuding Bank Tower in Central, Xia Yu and Liu Tianzi look at the crowded bank lobby, both displaying satisfied smiles.

Other small and medium-sized banks are worried about the crowds, as most people are there to withdraw money.

However, Jiuding Bank welcomes the influx of people, as the vast majority are there to deposit funds, with only a few exceptions.

During this banking crisis, Jiuding Bank benefits from its backing by Jiuding Cultural Media Group, gaining a significant advantage in public opinion. Repeated promotions have bolstered citizens' confidence in Jiuding Bank.

Although Jiuding Bank is a newly established large bank, its substantial capital allows it to thrive in a downturn and attract a large volume of deposits.

"Chairman, I didn't expect Xie Li Yuan Gold Shop to collapse before we even heard anything from Henglong Bank and Jiahua Bank," Liu Tianzi remarked with a strange smile. He was surprised by the news of Xie Li Yuan Gold Shop's problems but felt no sympathy. Although Xie Li Yuan Gold Shop was affected, its own issues were the primary cause of its collapse.

"It serves them right!" Xia Yu smiled and said nonchalantly. "The collapse of Xie Li Yuan Gold Shop was inevitable, whether now or later. It was just a matter of timing."

"Keep a close watch. Henglong Bank and Jiahua Bank can't hold out much longer. They'll declare bankruptcy in the next two days at most. The Hong Kong government will look for other banks to take over, and HSBC and Standard Chartered won't let the opportunity slip by."

Liu Tianzi nodded in agreement, "Rest assured, our bank is a major creditor of Henglong Bank and Jiahua Bank. Even if HSBC and Standard Chartered use their connections, our bank still has a strong chance."

"Good, just manage it well," Xia Yu replied with a smile.

...

At the HSBC Tower, Shen Bi puts down the newspaper and listens attentively to the report from Tom Yassou, the head of the M&A department.

"Chairman, we have thoroughly investigated and found that Henglong Bank misappropriated funds from customers' gold futures purchases, resulting in a loss of 320 million HKD. The Financial Services Authority is still auditing other accounts."

"Jiahua Bank's losses are smaller, but it still lost 220 million HKD in its gold business."

"Based on our analysis, the probability of Henglong Bank and Jiahua Bank going bankrupt is 95%."

"Henglong Bank and Jiahua Bank are valuable acquisition targets. Henglong Bank's net assets range from 280 million to 350 million HKD, with total assets over 3.5 billion HKD. Jiahua Bank's net assets range from 200 million to 250 million HKD, with total assets over 2.5 billion HKD."

"If HSBC acquires shares in both banks and provides capital injection, it could help both banks overcome the crisis. With proper management, the losses could be recovered in three to four years."

After hearing this, Shen Bi reflects for a moment and instructs Tom Yassou, "Prepare to make contact with the Hong Kong government immediately after Henglong Bank and Jiahua Bank declare bankruptcy. It would be ideal if we can take over both banks completely."

"Yes!" Tom Yassou replies with renewed vigor and then leaves to make preparations.

In 1965, during the banking crisis, one of the major Chinese banks, Hang Seng Bank, was also affected by a bank run. The then-chairman, Ho Sin Hang, had to borrow money urgently.

However, wealthy merchants and banks close to Ho did not offer assistance, forcing him to seek help from foreign banks, eventually reaching HSBC. HSBC agreed to help Hang Seng Bank with unlimited funding to overcome the crisis.

However, HSBC's condition was to acquire 51% of Hang Seng Bank's shares. Ho Sin Hang only agreed to 35%, but in the end, to avoid Hang Seng Bank's collapse, Ho and the Hang Seng Board reluctantly accepted HSBC's terms.

To this day, HSBC still holds a 51% stake in Hang Seng Bank, making the once-large Chinese bank a subsidiary of HSBC.

This situation is different. Henglong Bank and Jiahua Bank are the sources of the crisis, and it's too late for HSBC to help.

However, the opportunity this time is even greater. Shen Bi hopes to fully acquire both banks.

As soon as the banks declare bankruptcy, HSBC could potentially take over both without spending a penny, only incurring the debt of the two banks.

With HSBC's strength and influence, Shen Bi is confident that acquiring both banks would allow HSBC to weather the bank run and spend a few years managing them to recover the losses. In effect, it would be like getting two banks for a very low cost, with only minimal debt and a few years of management.

If the market conditions are favorable, the losses could be recovered within a year or two.

This is far more cost-effective than acquiring a 51% stake in Hang Seng Bank in 1965, and it allows for a full acquisition.

Bankruptcy means the bank's net assets are less than its losses, not that its total assets are depleted.

Typically, a bank's net assets are less than 10% of its total assets, which is why banks can offer high returns.

Even if Henglong Bank and Jiahua Bank go bankrupt, they still have 2 to 3 billion HKD in assets. These assets essentially do not belong to the banks but are managed by them, consisting of mortgaged real estate, loans, bonds, etc.

If it's possible to acquire these two banks at zero cost or with minimal debt, it would mean acquiring deposits and business volume worth five to six billion HKD. Such a large opportunity is hard to find.

However, not everyone has the capability to revive these banks after taking them over. In Hong Kong, few have this ability.

Standard Chartered Bank, Jiuding Bank, Swire Properties, and Bank of China all have the strength and qualifications to do so, as do the large Western banks with branches in Hong Kong.

The leaders of these banks and forces are not pushovers

. Their strategies are similar to Shen Bi's, so it will come down to who has the better tactics to seize the opportunity.

The major sharks sharpen their teeth, waiting for Henglong Bank and Jiahua Bank to declare bankruptcy.

Soon, two days pass, and it's March 19.

The Hong Kong government has thoroughly investigated the two banks. As expected, both banks are insolvent.

Henglong Bank's net assets, after offsetting losses, stand at a negative 23 million HKD.

Jiahua Bank's net assets, after offsetting losses, stand at a negative 16 million HKD.

Both banks declare bankruptcy simultaneously! The Hong Kong government holds a press conference, asking depositors to be patient and promising to provide a resolution for all affected depositors.

The waiting sharks immediately spring into action!