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Related Issuers
Rating Action:

Moody's affirms Fubon Securities' Baa1 issuer rating; outlook stable

18 Feb 2019

Hong Kong, February 18, 2019 -- Moody's Investors Service has affirmed Fubon Securities Co., Ltd.'s Baa1 long-term issuer rating, and maintained its standalone assessment at Baa3.

The outlook on Fubon Securities is stable.

At the same time, Moody's has withdrawn the outlook on Fubon Securities' long-term issuer rating for business reasons.

RATINGS RATIONALE

The affirmation of Fubon Securities' Baa1 issuer rating takes into account its Baa3 standalone assessment and Moody's incorporation of two notches of affiliate support uplift, reflecting Moody's assumption that the company will receive a very high level of support from its parent holding company, Fubon Financial Holding Co., Ltd. (issuer rating Baa1 stable), in times of need.

The Baa3 standalone assessment for Fubon Securities factors in the company's sound profitability, low but rising balance sheet leverage, and reliance on wholesale funding. The standalone assessment also takes into account the intense competition that the company faces and the maturity level of Taiwan's capital markets.

The company continues to maintain conservative balance sheet leverage, with total assets amounting to 3.8x its tangible common equity at 30 September 2018. Moody's expects that the company will maintain moderate asset growth over the next few years.

The company's funding consists principally of short-term repurchase agreements and notes and commercial paper issuance, which are highly confidence sensitive. Nonetheless, Fubon Securities has sizable holdings of cash and liquid securities as well as lines of credit from Taiwanese commercial banks that can be used to repay such liabilities. This situation partially mitigates concerns over the company's reliance on wholesale funding and would help with its liquidity in times of stress.

Fubon Securities reported high average return on assets of 2.1% between 2016 and the first nine months of 2018. The company benefited from favorable market sentiments and increased trading volume on the local stock exchange in 2017 and most of 2018, which underpinned its profitability. However, its profitability would be under pressure if trading volume shrinks because of weak market sentiments and if commission rates are lowered because of intense competition and/or further customer shifts to electronic trading.

In the past two years, the company has been investing in more fixed income assets and equity securities to earn a higher yield. This has led to a higher risk appetite. Nonetheless, its securities holdings comprise mainly of investment-grade bond securities and such holdings help lower its credit risk exposures. However, potential bond market volatilities could weigh negatively on Fubon Securities' performance, given the increase in the company's fixed income holdings.

Moody's considers the likelihood of affiliate support for Fubon Securities very high, given that 1) Fubon Securities' brokerage and wealth management services are integral to the group's overall retail customer product offerings; and 2) Fubon Financial is obligated to provide support to Fubon Securities in the event of need, under Taiwan's Financial Holding Company Act, which requires financial holding companies to ensure the health of their subsidiaries.

Factors that could lead to an upgrade

Moody's could raise Fubon Securities' standalone assessment if (1) its funding and liquidity profile improves, and (2) the company develops a business model with more stable revenue to offset potential decline in its brokerage commission, without incurring material additional market and credit risks.

Moody's could also upgrade the company's rating if the group's ability to provide support strengthens, as evidenced by, for instance, the improvement in the credit profiles of the company's insurance and banking affiliates.

Factors that could lead to a downgrade

Moody's could downgrade Fubon Securities' rating if it expands into higher-risk businesses without adequate risk controls, significantly increases its balance-sheet leverage, demonstrates material weakness in risk controls, especially in market and operational risk, or experiences weakened profitability.

Moody's could also downgrade the rating if there is a material deterioration in the credit profiles of its banking and insurance affiliates, which weaken in turn the holding company's ability and capacity to support Fubon Securities.

The principal methodology used in these ratings was Securities Industry Market Makers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Fubon Securities Co., Ltd. is the third-largest brokerage firm in Taiwan by brokerage market share, with an equity brokerage market share of 6%. The company reported total assets of TWD135 billion as of 30 September 2018. It provides equity and futures brokerage and offers fund products primarily to retail customers, and is wholly owned by Fubon Financial Holding Co., Ltd.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sonny Hsu
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Yat Man Sally Yim
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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​
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