Chapter 433 The Beginning of a Run on Hang Seng Bank

Chapter 433 The Beginning of a Run on Hang Seng Bank

Chapter 433 The Beginning of a Run on Hang Seng Bank

After 1965, Hong Kong's real estate market began to cool down gradually. In the fourth quarter of 64, the total transaction volume showed a significant decline. Even though there were no unsold properties in the Hong Kong government's auctions, the enthusiasm of real estate companies for bidding was gradually declining.

On January 1, early in the morning, Yang Wendong just arrived at the company, but saw Zheng Zhijie waiting at the assistant's desk at the office door. After seeing the boss, he hurried over and said, "Mr. Yang, a big event happened in the banking industry yesterday. A check for 22 million Hong Kong dollars issued by Mingde Bank was bounced."

"Refuse to pay?" Yang Wendong's mind moved, and then he said, "Go in and talk. Ah Ying, bring two cups of tea."

"Yes." Assistant Aying quickly agreed.

After the two entered the office, they sat down on the sofa next to the French window. Yang Wendong immediately asked, "Is there a problem with the funds of Mingde Bank?"

Originally, the banking crisis in 1965 was caused by the financial problems of Mingde Bank, which led to a bank run and eventually caused the collapse of all Chinese banks in Hong Kong.

Even the subsequent crisis in the real estate market was caused by this incident. Probably because of this, the cashing out of Changxing Real Estate last year did not cause much response. At most, some people became more cautious, and the real estate market cooled down ahead of time, but it did not cause a collapse.

Zheng Zhijie shook his head and said, "I don't know. The whole market is speculating now. It is said that the real estate company that Mingde Bank cooperated with had problems, resulting in the inability to recover funds.

But the news of the refusal to pay has spread throughout Hong Kong, and I estimate that a run similar to the one in 1961 may soon occur.”

"Then wait and see." Yang Wendong nodded and said, "I've also heard that the real estate market has been hot in the past two years, and many banks have made profits illegally. It is inevitable that this situation will occur now."

Banks do have risk control, but banking houses are far from that. In essence, banking houses are lending companies, similar to P2P on the Internet in the past. The Hong Kong government is also implementing a "free market" policy and does not care at all.

In 61, there was a bank run on Liu Chongxing, which led to the Hong Kong government imposing some restrictions on banks, but after a year or two, the government stopped caring again.

When the real estate market was booming, banks also wanted to get a piece of the pie, so naturally the more loans the better. In order to increase leverage, many real estate companies even increased interest rates, which made many banks and even banks take risks to make more money.
It is unimaginable that without controlled capital, they dare to do things that cost their lives for huge profits. Moreover, like many real estate companies, they also have enough confidence in the Hong Kong real estate market.
Zheng Zhijie nodded and said, "Yes, last year, many banks wanted to cooperate with us, and the conditions they proposed were very tempting. If it weren't for you, Mr. Yang, ordering us to withdraw, I might have really cooperated with them."

"The final madness is all like this." Yang Wendong nodded and said.

Zheng Zhijie continued: "In addition, the new banking regulations promulgated by the Hong Kong government at the end of last year also restricted banks."

"It is only right that the Hong Kong government gradually tightens restrictions on banks." Yang Wendong added, "So, during this period of time, you just keep an eye on Mingde Bank, but don't interfere. Let's see how this matter develops."

In fact, if Yang Wendong stepped forward at this moment, he could easily save Mingde Silver Bank with just 800 million Hong Kong dollars, but it is impossible to say that this can change history.

The run on Mingde Bank was only the fuse of the Hong Kong banking crisis, not the essence. Nowadays, property prices are falling, and many banks and silver houses will have problems recovering the funds they have lent out. If he saved Mingde today, other silver houses or banks may encounter problems tomorrow. He cannot save everyone, and he has no obligation to do so.

He even felt that there was a big force behind this matter, and that it was of no benefit. There was no need for him to get involved in it. He should just wait and see what happened and make a decision when the time comes.

Zheng Zhijie agreed and said, "Okay."

Yang Wendong asked again: "How much money do we have in deposits in Chinese banks in Hong Kong?"

"Most of it has been transferred according to your order." Zheng Yuhua said, "But not all of it has been transferred. There are still more than 1000 million in Bank of East Asia and Hang Seng Bank. These two banks were also approved by you."

"Okay, I understand." Yang Wendong nodded and said, "It is indeed not convenient for us to transfer all the funds."

The Bank of East Asia and Hang Seng Bank were relatively famous banks in the past. They both had strong foundations and no major problems of their own. Even if a run on the bank really occurred, they could still be saved. After all, HSBC acquired Hang Seng not because it wanted to save the economy, but because Hang Seng itself was a piece of fat meat. The same was true for the Bank of East Asia.

Therefore, it is okay to put some deposits in it. Even if the history remains unchanged, HSBC will recognize the debt after acquiring Hang Seng.

In the following days, Yang Wendong also paid close attention to the developments in the Hong Kong banking industry;

The reason why Mingde Bank refused to pay was soon exposed by insiders, because there was no money in the account. The bank itself was not large in scale and a large amount of funds had been lent out. Who would have thought that there would be a request to transfer 800 million deposits?

You know, with such a large bank deposit, even the business manager of HSBC has to treat this client as a big shot. In Hong Kong, there are actually people who deposit 800 million in cash. In the past few years, it was an era of picking up money. 800 million in cash could be leveraged to mobilize tens of millions of funds. Many listed companies do not have so much cash.

And how could such a large deposit be safely stored in Mingde Bank? All this seemed very strange.
Soon a large number of people lined up to withdraw money from Mingde Bank. For many people, what happened in 1961 was still vivid in their minds. Afterwards, many large depositors also went to withdraw money. The deposit certificates of these people were often worth 50 or even yuan. In its early years, Mingde Bank relied on high interest rates to attract customers, but after attracting them, it had to lend them out, otherwise how could it pay the interest?

But now that so many people were withdrawing money, Mingde Bank had problems with its own funds, so on the 24th, there was no money left, and the account was empty.
As the news spread, more depositors rushed to withdraw their money, paralyzing the traffic in front of Mingde Bank's headquarters. The incident soon attracted the attention of the Hong Kong government, which immediately took over Mingde Bank and promised to guarantee all deposits.

Eventually, the run on Mingde Bank officially ended. Everyone still trusted the Hong Kong government, and the matter came to an end. However, the seeds of doubt had already been planted and could not be removed.

The Spring Festival of 1965 arrived.

The Yang family celebrated a peaceful Spring Festival just like in previous years, and there was another big happy event during this year's Spring Festival, which was that the Dongjiang water project in the mainland was finally completed.

A large amount of Dongjiang water was connected to the Hong Kong Water Supply Company. For a time, the water pressure of tap water in various parts of Hong Kong became much stronger, and fountains in some parks and city centers were also turned on.

This is also a shot in the arm for Hong Kong's economy. Previously, water shortage affected almost all industries. Real estate needs water, factories need water, and power plants also need water. Now, this problem has finally been completely solved.

After the Spring Festival, everyone goes back to work as normal, including banks.

Guangdong Trust Development Bank was also soon hit by a run. This was because during the Spring Festival, many newspapers described the debt and funding problems of many banks. Even people setting up stalls in the streets were passing on news about the problems of many banks to each other.

Therefore, on the first day after the Spring Festival, Guangdong Trust Bank was chosen as the target for ordinary people to withdraw money;

However, regardless of whether the bank has problems or not, there is no bank in the world that can withstand a run on its banks by customers. The smaller the bank, the lower its ability to withstand it.

Within a few days, the funds in Guangdong Trust Bank's account were exhausted. Its boss immediately asked other banks for help, but other banks were afraid that they would be the next bank run, so they naturally did not dare to help. Eventually, it was forced to declare bankruptcy. As soon as the news came out, all major Chinese banks in Hong Kong were immediately caught in a bank run, including Hang Seng Bank, Bank of East Asia, Far Eastern Bank, Dao Heng Bank, Wing Lung Bank, etc., each of which was hit to varying degrees.

British banks were much better. No matter whether it was HSBC or Standard Chartered, there was no one running in front of the bank branches. Many people even withdrew money from Chinese banks and deposited it in British banks. They were just watching the fire from the other side.
Inside Hang Seng Bank, Ho Sin Hang's face was livid, and a dozen people below were sitting with stern expressions. The whole space was very quiet, and even the breathing was controlled.

"How much money is left in your bank account now?" He Shanheng asked a middle-aged woman.

The middle-aged woman replied, "Mr. He, there is still 4500 million Hong Kong dollars in the account, of which 2600 million was originally prepared to be loaned out, but the process has not been completed yet."

"I suggest that we stop going through the process and stop all unloaned money." A senior executive said quickly: "Mingde Bank and Guangdong Trust Bank have gone bankrupt. We need to keep sufficient funds to deal with any possible events."

"Mr. Qin, Mingde and Guangdong Trust have problems with their banks. They previously had very low risk control in terms of loans." A man said, "But our Hang Seng Bank follows the normal operating standards of international banks. We have always controlled risks, are much larger in scale, and have stronger risk resistance. Is it necessary to operate like this?

We have signed contracts with many companies for these loans. If they fail to pay on time, they will have to pay liquidated damages, and this will also seriously affect the commercial reputation of our bank."

No one else said anything. They all looked at the man who was speaking. This man was in charge of bank credit. The suspension of loan issuance would be a devastating blow to his income, commissions, business connections, etc.

But even if we ignore his own reasons, what he said is right. If a bank defaults on such a large scale, the consequences will be very serious. So far, only two small banks have been run. Isn't it a bit of an exaggeration to do this?
The person just now said: "What if there is not enough money in the account and our bank is also run? Depositors don't care whether your operation is normal or not, they just let you withdraw money. Once the money is gone, even if you are a god in the world, you can't prevent a run."

"I disagree." Another person said, "If we default on a large scale, not only will we lose our business reputation and some customers, but more troublesomely, at this point in time, if we are sued for not lending, it may also cause a run on the bank, and the result will be the same."

"It's different. At most you can give them some compensation. A few entrepreneurs can still make sense of it, but for tens of thousands of depositors, the more you explain, the less they will believe you."

In the conference room, the executives of Hang Seng Bank were still arguing, each with their own opinions.

He Shanheng, who was sitting in the chairman's seat, frowned. He was in a dilemma. Leaving money for preparation would affect the business for the next year or even several years. If he didn't leave money, he would not know if he could handle it if he encountered a run on the bank.
"That day, Yang Wendong asked me to keep more funds. Could it be that he was preparing for a rainy day and knew what would happen today?"

He Shanheng quickly recalled Yang Wendong's previous words. Although they were spoken casually, he did not take them too seriously at the time. But when he thought about it today, it seemed like a reminder. But how could he know?
"Did he infer this based on the real estate market and the proportion of bank debt in Hong Kong?"

If you think in this way, it is possible. There is no one in Hong Kong who does not admire Yang Wendong's ability. With his vision, it should not be difficult for him to calculate the risks of Hong Kong's banking industry. It will be fine as long as he can be sure that there will be problems in the Hong Kong real estate market. Because once the land price falls or even stops rising, the bank's bad debts will appear.

It's a pity that he had a lot of funds at the time, but because his bank had very low risk, he did not keep it, but operated a lot of it according to normal business operations and loaned out a lot of it.

"Mr. He?" At this time, the assistant beside him reminded.

He Shanheng also recovered from his thoughts and said, "Well, let's negotiate with our loan customers first. If they are willing to suspend their loans, we can compensate them appropriately, or make a written promise to give them a loan with a lower interest rate in the next six months.

If they don't agree, we can try to transfer their loan business to other banks. If that doesn't work, we can only take out a loan. I think if we do this, even if we still need a loan, the total amount of funds will not be very large.

I know all the customers who took out the next batch of loans. They are our old customers. We have helped them before, so they shouldn’t have any big problems.”

"Okay, Mr. He." Many people nodded in succession.

This method is indeed the most appropriate one at present.

He Shanheng added: "In addition, in order to avoid uncontrollable situations, the loan department can contact some long-term partners with whom we have good relationships and ask them if they can repay the loan in advance. We can also compensate them appropriately."

After hearing this, the others also agreed. Now they would sacrifice a little profit without losing their business reputation. They would recover some funds on a mutual basis and avoid short-term risks.

He Sheng's move was indeed quite good.

In the blink of an eye, another week has passed.

The banks in Hong Kong were going crazy because the bank runs were getting more and more exaggerated; in 61, it was only Liu Chong Hing Bank that was hit by a bank run, and they were watching from the sidelines, and when Liu Chong Hing asked for help, they even laughed at him behind his back.

But today, they also have to experience the despair that Liao Baoshan experienced back then. In any branch, there are endless people queuing up to withdraw money. Each person does not have much, but when added together, a branch can withdraw millions of Hong Kong dollars in a day.

In mid-February, several smaller banks could no longer hold on and immediately gave up: they had no money.

They couldn't even stand up, so ordinary people in Hong Kong became even more panicked. They took leave from work one after another to withdraw money.
At Changxing Building, Yang Wendong also received a large number of messages from employees asking for leave. He had no choice but to agree and said, "Let them take leave. We can't stop them at this time. We can just adjust their leave later."

Wei Zetao said: "It is possible to adjust the leave, but such unplanned large-scale leave will still affect our production capacity."

"There's nothing we can do about it. How can a few days' income from a job compare to their half-life savings?" Yang Wendong said, "We are in Hong Kong. When something big happens in Hong Kong, it will also affect us. Wasn't the water shortage the same before?"

Don't talk about such a small matter now. In two years, the impact will be even greater. This is one of the reasons why Yang Wendong began to gradually relocate production capacity as early as 63. Not to mention making up for the losses at that time, at least having a production base overseas will always be much better.

Wei Zetao said: "That's the only way."

Yang Wendong then looked at Zheng Zhijie and asked, "Is there a run on Hang Seng Bank now? What's the situation?"

Regardless of whether Yang Wendong existed or not, this bank run was bound to happen, because the core essence is the Hong Kong government's lack of control over banks. During the real estate bull market in the past few years, too many banks ignored risks in order to make money, which laid the groundwork for today's problems in the real estate market and the banks' collapse.

What’s more important is that Yang Wendong felt that someone was fanning the flames behind today’s events, but there was no evidence and everything was just speculation.

"Yes, the branches of Hang Seng Bank have also started to run on banks, and there are a lot of people involved." Zheng Zhijie added: "Ho Sin Hang is now raising money."

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(End of this chapter)