Hong Kong, March 22, 2013 -- Moody's Investors Service has affirmed the Baa2 issuer rating on
Fubon Securities Co., Ltd.
The rating outlook remains stable.
The rating and outlook of its parent, Fubon Financial Holding Co.,
Ltd. (Fubon Financial, long-term issuer rating Baa1,
stable outlook) and its affiliates are not affected in this rating ration.
Its affiliates include Taipei Fubon Commercial Bank Co.,
Ltd. (long-term deposit rating A2, stable outlook),
Fubon Life Insurance Co., Ltd. (insurance financial
strength rating A3, negative outlook), and Fubon Insurance
Co., Ltd (insurance financial strength rating A1, stable
outlook).
RATINGS RATIONALE
"Moody's has affirmed the Baa2 long-term issuer rating
of Fubon Securities because we expect its overall credit profile to remain
stable, despite some pressure on profitability," says
Ginger Kao, a Moody's Analyst. "The company currently
benefits from a strong franchise as one of the top brokerages in Taiwan,
as well as low leverage, solid capitalization and adequate liquidity."
Despite the volatility in the capital markets, it has consistently
achieved good profitability, with a 5-year average pre-tax
margin of about 30%.
"The affirmation also reflects Moody's belief that Fubon Financial
would support the company in a case of stress -- either
providing capital or liquidity -- as required by Taiwan's
Financial Holding Company Act," adds Kao.
"This conclusion is based on our view that Fubon Securities is and
will remain one of the core subsidiaries of Fubon Financial. Therefore,
its rating benefits from an uplift to its standalone credit profile owing
to parental support," says Kao.
However, Fubon Securities' standalone strengths are offset
by the relatively small scale of its business by global standards and
the vulnerability of its earnings to the volatility in Taiwan's
stock market. In addition, the highly competitive nature
of the domestic market is pressuring its brokerage market share and margins.
Its core earnings from its brokerage business, accounting for more
than 50% of total net revenues, dropped 24% year on
year for 2012, while the daily average trading volume of Taiwan's
stock market also shrank by 24% over the same period. In
addition, net revenue from principal transactions declined 61%
(on an unconsolidated basis) as a result of the weaker performance of
the Taiwan market.
A further weakening in its profitability metrics -- as indicated
by lower pre-tax margins and higher volatility in pre-tax
margins -- will elevate concerns over earnings strength,
a credit negative for its fundamental credit profile.
The capital position of Fubon Securities is considered strong when compared
to its peers. It had consolidated total equity to total assets
of 69.5% and a regulatory capital adequacy ratio of 472%
at end-2012.
Nevertheless, a significant improvement in its capitalization level
is unlikely, as it is likely to maintain a high dividend payout
ratio, or even potentially reduce capital to support the business
expansion of its other affiliates and the dividend payment needs of Fubon
Financial. Any significant capital reduction would be negative
pressure to the rating.
An upgrade is unlikely in the near to medium term. However,
in the long term, upgrade pressure could emerge if the company (1)
significantly improves its market position and franchise; (2) successfully
diversifies its business to reduce earnings volatility; and (3) noticeably
enhances its risk management practices.
On the other hand, a downgrade of its rating could occur if the
company (1) suffers a further weakening in profitability; (2) engages
in acquisitions or expands into high-risk businesses, and
which increases its overall risk or erodes its capital base; and
(3) faces material weakness in its risk controls, especially in
market and operational risk. In addition, a substantial deterioration
in the financial condition of Fubon Financial and other affiliates would
pressure Fubon Securities' rating.
RATING METHODOLOGY
The principal methodology used in this rating was Global Securities Industry
Methodology published in December 2006. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
Fubon Securities, based in Taipei, had total consolidated
assets of TWD44.7 billion and total consolidated equity of TWD29.2
billion as of June 2012.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
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.
Ginger Kao
Analyst
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
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's affirms Fubon Securities Baa2 rating; outlook stable