April 28, 2009

Bank of China Ltd., the nation’s third-largest by market value, posted a 14 percent drop in first-quarter profit as it set aside more funds for potential defaults and writedowns of U.S. mortgage investments.Net income declined to 18.6 billion yuan ($2.72 billion), or 0.07 yuan a share, from 21.7 billion yuan, or 0.09 yuan, a year earlier, the Beijing-based company said in a statement to the Hong Kong stock exchange today. That beat the 17.8 billion yuan average estimate by six analysts in a Bloomberg survey.Chairman Xiao Gang plans to offer at least 500 billion yuan in new loans in China this year to help finance the nation’s 4 trillion yuan stimulus package and offset losses on overseas mortgage investments.

Bank of China has lost more on such investments abroad than all the other Chinese lenders combined.“This is very likely to be the worst quarter for banks in 2009 as lending margins hit a low and mortgage investments continued to be a drag,” said James Liu, a Shanghai-based analyst at Sinopac Financial Holdings Co. “They should be out of the woods in the second half.”Bank of China wrote down the value of subprime-related assets and other securities by about $380 million in the three months, taking total impairments to about $4.84 billion since the end of 2007.The Chinese lender still held $2.22 billion of subprime- mortgage investments, $1.05 billion of securities backed by Alt- A home loans and $3.2 billion of other “non-agency” mortgage investments as of March 31.