Bank of China’s hit

Big number, big panic. Bank of China spooked investors this week when it confessed to holding almost $10bn of securities backed by US subprime mortgages. That is the biggest exposure announced by any bank to date and no small change for China’s number two lender. Bank of China did not raise a whole lot more than $10bn when it listed on the Hong Kong stock exchange last year and generated substantially less in operating profit in the first six months of this year.
True, the subprime exposure looks less toxic when measured against the bank’s capital. It represents a little more than 1 per cent of total assets and about one-fifth of shareholders’ equity. It is also relatively top-drawer paper. More than 75 per cent of the securities are AAA-rated while almost all the remainder are AA.