January 13, 1998


          Hong Kong's Peregrine Soared Like a Falcon, Sank Like a

          Reckless Bank




          By EDWARD A. GARGAN


              ONG KONG -- With the collapse of Peregrine

              Investments Holdings on Monday, Asia's biggest

          underwriter of stocks has disappeared off the map of

          Asian investment banking just one decade after it was

          created by a swashbuckling former British racing driver

          and his Hong Kong partner.


          The factors behind Peregrine's downfall were many and

          complex, and had much to do with its brash -- some would

          say insolent -- culture. Yet some executives at

          Peregrine, as well as financiers familiar with its final

          days, said its demise became inevitable only after First

          National Bank of Chicago, its lead banker and an

          investor in the firm's putative restructuring, pulled

          out of a proposed rescue effort and canceled a financing

          for Peregrine at the last moment.


          The flame-out of Peregrine, the largest investment bank

          in Asia outside of Japan, spread panic through the Hong

          Kong stock market and raised further questions about the

          depth and duration of the economic crisis that is

          ravaging the fruits of more than a decade of explosive

          regional growth.


          Yet, in many ways, Peregrine's downfall was emblematic

          of the fault lines in the foundations of Asia's

          once-vaunted economic miracle. Its headlong rush to do

          deals, its reliance on connections in high places, and

          its willingness to skim the edges of legality and

          propriety mirrored the region's reckless economic growth

          and its tolerance of widespread corruption and cronyism.


          But even in a part of the world where risk-taking had

          become the key to economic success, Peregrine stood out.

          It largely pioneered the market for junk bonds in Asia.

          After cozying up to the Chinese authorities in Beijing,

          it became the powerhouse behind virtually every initial

          listing by Chinese companies on Hong Kong's stock

          exchange. And it foraged markets -- Vietnam and Myanmar,

          for example -- that few others would go near because of

          their horrendous human-rights records.


          On Monday, as Peregrine filed for liquidation, Hong

          Kong's stock market plummeted 8.6 percent, continuing a

          meltdown that has stripped it of more than one-quarter

          of its value so far this year. Even so, Hong Kong

          monetary authorities played down the threat the bank's

          collapse posed to the financial system. Donald Tsang,

          Hong Kong's financial secretary, turned down Peregrine's

          request for assistance over the weekend after a rescue

          package with a Swiss financial group fell apart. Tsang

          said a bailout would not be "in the public interest."


          In the end, financial analysts here and elsewhere said,

          it was arrogance that did Peregrine in -- an arrogance

          that emanated from the personality of its founder,

          51-year-old Philip Tose of Britain, and his Hong Kong

          partner, Francis Pak To Leung, and that pervaded the

          bank's culture. That arrogance, they said, led the

          company to lend too much money for questionable projects

          and to exercise too little high-level supervision over

          managers, and especially over Andre Lee, who ran its

          highly profitable and nearly autonomous bond department.


          As a result, when Asia's financial crisis broke last

          summer, Peregrine was ill-equipped to cope with the

          fallout. Indeed, it was the failure of an Indonesian

          taxi-cab company that fatally undermined Hong Kong's

          premier investment bank.


          Sometime last summer, when bullishness was still the

          sentiment of the day, Peregrine made a bridge loan of

          $260 million to Steady Safe, run by one of Indonesia's

          flashiest wheeler-dealers, Jopie Widjaya. Widjaya's

          dream was to move from his profitable but humdrum

          Jakarta taxi business, with its fleet of 4,000 cabs, to

          rail projects, ferries, and toll roads. Widjaya had the

          right connections; he had even bought a stake in a toll

          road owned by Siti Hardiyanti Rukmana, the eldest

          daughter of President Suharto.


          Steady Safe had all the elements of a Peregrine-style

          deal: access to the corridors of power, seemingly

          assured earnings, and sweeping opportunity. The problem

          was that Peregrine lent the $260 million in American

          dollars -- fully one-third of Peregrine's capital --

          against Steady Safe's revenues in Indonesian rupiah. At

          the time, Peregrine seemed convinced that the rupiah was

          sound, and that it could soon resell the bonds backing

          the loan. Moreover, the fixed-income team that cut the

          deal had earned 38 percent of Peregrine's profits the

          previous year; this was just one more deal.


          Analysts say such confidence was misplaced. Any lender

          entrusting the equivalent of one-third of its capital to

          any borrower, much less a little-known company in a

          country notorious for corruption, shows poor financial

          judgment, they say.


          But far from having second thoughts after the financial

          turmoil that wracked Thailand last July spread

          throughout Asia, Peregrine remained upbeat. In late

          October, even though the rupiah had by then lost 30

          percent of its value, Peregrine's own weekly analytical

          reports, boldly titled Greed and Fear, argued that the

          rupiah's collapse "certainly looks overdone and suggests

          a countertrend rally may be overdue."


          That same month, rumors began percolating in Hong Kong

          that Peregrine had taken $1 billion in trading losses,

          rumors vigorously denied by Tose. But even as he

          insisted on the bank's solidity, the rupiah was slipping

          and Peregrine's chairman was looking for an investor to

          replenish the company's capital.


          In November, Tose announced that he had struck a deal

          with Zurich Center Investments Ltd., part of Zurich

          Group, a Swiss financial-services company, to buy a

          24.1-percent stake in Peregrine for $200 million.

          Peregrine's chairman was ebullient.


          But the deal never went through.


          According to Zurich Group, the two companies planned to

          set up an Asian investment fund, called the Peregrine

          Direct Investment fund, with a commitment of $50 million

          from each partner and an expected infusion of $350

          million to $500 million from institutional investors.


          But the continuing financial tumult in Asia apparently

          made Zurich nervous. A spokesman declined to go into

          details about the group's decision to back away, saying

          only it was the "end result of the negotiations to

          rework the conditions" of Zurich's participation.


          Meanwhile, events in Indonesia tumbled out of control,

          and its currency collapsed. Steady Safe, with its

          earnings in rupiah, could no longer pay meet payments on

          its dollar loans, particularly the huge loan from

          Peregrine. The taxi company's stock sank to a sliver

          over one penny and, last week, it locked its doors.


          As Peregrine's stock continued to slide, trading in the

          bank's stock was suspended. As Zurich Group was

          preparing one final offer to Peregrine, there seemed

          little hope of a deal. "When Zurich came back last

          week," said a senior Peregrine official who only agreed

          to speak anonymously, "they were going to buy our bond

          portfolio for 16 cents on the dollar. The bond portfolio

          was $600-million plus; there's a lot of good paper in

          that portfolio. But when you have a situation where they

          say you have $260-million, $270-million worth of bad

          paper, they say: 'What else have you done?' It just



          At the table with Zurich was First Chicago, one of

          Peregrine's principal creditors. At about one o'clock in

          the morning on Friday, First Chicago left the

          negotiations. "Zurich walked away six hours later," said

          the Peregrine official. "It just unraveled from there."


          A spokesman for First Chicago declined to comment on the

          matter. But executives at both Peregrine and Zurich said

          on Monday that First Chicago had initially pledged $25

          million for a small stake in Peregrine, then had a

          change of heart. First Chicago's departure from the

          negotiations on Friday morning prompted Zurich's

          decision to throw in the towel, they said, in part

          because it did not wish to raise its stake in the

          company significantly beyond 24 percent.


          "They did not want to go up to 35 percent and make a

          general offer," as required by Hong Kong law whenever a

          buyer's stake exceeds 30 percent, a Peregrine executive

          in Hong Kong said.


          Meanwhile, Peregrine executives desperately tried to

          salvage something from the fiasco, maintaining that the

          firm's brokerage and corporate-finance businesses would

          make good acquisitions for the right buyer. "We still

          have a first-class franchise and it would be highly

          regrettable if that was not kept in tact," said Timothy

          Voake, chief executive officer of Peregrine Brokerage

          Inc., which has headquarters in New York. "The level of

          support from the client base has been remarkable."


          After the collapse of negotiations in Hong Kong, a press

          conference announcing a deal was abandoned. Swiftly, the

          Securities and Futures Commission ordered Peregrine to

          stop all trading activities. Peregrine's seat on the

          stock exchange was also suspended.


          Peregrine was bust. Scarcely six months ago, Peregrine

          was the enfant terrible of Asian banking, a champion of

          "buccaneering" in the words of Tose.


          "One of Peregrine's great advantages in its heyday was

          to commit its own capital rapidly to transactions, with

          bridge loans for example," said Richard Margolis, a

          senior vice president at Merrill Lynch (Asia Pacific)

          Ltd. "It could take decisions quickly."


          Peregrine was created in 1988 on $38 million raised by

          Mssrs. Tose and Leung -- both refugees from Citibank's

          foundering investment banking venture -- from some of

          Hong Kong's tycoons, including Li Ka-shing, a leading

          property and infrastructure developer, Gordon Wu, an

          Asian infrastructure developer, and Larry Yung, China's

          principal investment banker here. Peregrine grew

          exponentially, with Tose and Leung capitalizing on

          personal contacts cultivated over the previous decade.

          Both men enjoyed lavish life styles, including buzzing

          around Hong Kong in Rolls-Royces.


          Connections, combined with speedy decision-making and a

          penchant for risk, catapulted the bank forward. And it

          rushed in where others hesitated to tread. Typical was

          Peregrine's response to China's massacre of civilians in

          Tiananmen Square in June 1989. "These events were just a

          hiccup," Leung said in an interview two years ago. "We

          decided we wanted to take advantage of depressed market

          conditions at the time."


          Quickly, Peregrine emerged as one of the largest

          underwriters in Hong Kong. And while China and Hong Kong

          remained the core of the bank's business, it spread its

          wings and splashed offices across 14 countries.


          Even Asia's widespread culture of corruption did not

          seem to trouble Tose. After all, he said in an interview

          with The South China Morning Post last year, it is

          "quite an open form of corruption."


          "It is not stalling advances in Asia," he added, "but is

          an accepted way of life in many ways."


          Unfortunately for Peregrine, though, it ruffled the

          feathers of local authorities in many of its forays. In

          Vietnam, it formed Peregrine Capital Vietnam with a

          fast-talking nightclub owner and car dealer named Nguyen

          Trung Truc, for example. Shortly afterward, Truc's other

          businesses were raided by tax authorities, and he wound

          up spending most of the year in jail for tax evasion.

          Peregrine itself was fined for operating a business

          without proper licenses.


          Last June, although storm clouds were rapidly gathering

          on Asia's economic horizons, Peregrine was buoyant. It

          reported hefty profits for the first six months of $82.5

          million on revenues of $19.6 billion.


          When the end came this past weekend, however, many

          people were asking why Peregrine's vaunted connections

          with some of Hong Kong's wealthiest and most powerful

          people did not result in the firm's rescue.


          As Monday wore on, hundreds of brokerage customers

          shuttled in and out of Peregrine's brokerage operations

          to close their accounts.


          "I was very surprised," said K. Chan, a 60-year-old

          retiree. "I've been with Peregrine for six or seven

          years. I'm going to transfer my stocks to another

          company." But, Chan continued, Hong Kong was not to

          blame. "What happened to Peregrine was caused by

          external forces, the Southeast Asian currencies. It's

          not because of Hong Kong itself."


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