Hong Kong, March 14, 2014 -- Moody's Investors Service has announced today that it is continuing its
review for possible downgrade of CTBC Financial Holding Co.,
Ltd's A3 long-term foreign currency issuer rating.
At the same time, Moody's is also continuing its review for
possible downgrade of CTBC Bank Co., Ltd's A2/P-1
local currency and foreign currency long-term/short-term
deposit ratings, the Baa3 foreign currency junior subordinated debt
issued by CTBC Bank Co., Ltd's Hong Kong Branch,
and the bank's overall C- bank financial strength rating,
which is equivalent to a baa2 baseline credit assessment.
Moody's continued review of CTBC group's ratings follows the
enforcement announcement made by Taiwan's regulator, the Financial
Supervisory Commission, on 11 March 2014 that approvals for CTBC
Bank to establish overseas units, as well as for investments,
will be suspended due to a finding of internal-control breach.
Moody's initiated its review on the ratings of CTBC Financial and
CTBC Bank after CTBC Financial's announcement on 31 October 2013
that CTBC Bank would acquire a 98.16% interest in Tokyo
Star Bank (unrated) for JPY52 billion (approximately TWD15.6 billion)
in cash.
The October announcement also revealed that CTBC Financial would acquire
100% of Taiwan Life Insurance Co. Ltd. (unrated)
through a stock-for-stock swap of CTBC Financial's
new rights issuance of the same amount, totaling TWD26.6
billion.
Both the acquisitions of Tokyo Star Bank and Taiwan Life are subject to
regulatory approvals.
RATINGS RATIONALE
"While the breach will prolong the regulatory approval process for
Tokyo Star Bank deal, Moody's believes CTBC Bank's financial
profile will not be affected by the violation," says Ginger
Kao, a Moody's Analyst.
According to the regulator, the bank's management concealed
from the regulator and from its own board members, the existence
of controls it had over a Shanghai-based company. The bank
was subsequently fined TWD10 million and restricted from establishing
overseas units and investments until the issue is resolved.
The approval for the purchase of Tokyo Star Bank will now be delayed until
CTBC Bank satisfies the regulator that appropriate measures have been
taken.
As for the acquisition of Taiwan Life, the holding company,
CTBC Financial's investments will also likely be affected by CTBC
Bank's regulatory breach, as the latter is a crucial part
of the group's operations. CTBC Bank's total assets,
for instance, represented 89% of the group's consolidated
assets at end-2013.
Moody's began its review of the ratings because of concerns that
the two acquisitions were sizable when compared to CTBC Financial and
CTBC Bank's business. Tokyo Star Bank and Taiwan Life represented
21.1% and 12.2% of the pro forma total group
assets at end-June 2013, respectively.
In addition, Tokyo Star Bank and Taiwan Life have relatively weak
financial profiles, which in turn would increase the overall risk
profile of CTBC group, if the acquisitions went ahead.
During the review, Moody's will continue to focus on the following:
(1) The group's strategy to integrate Tokyo Star Bank's and
Taiwan Life's operations with the group's existing businesses;
(2) Tokyo Star Bank's and Taiwan Life's business plans and
strategies;
(3) Tokyo Star Bank's and Taiwan Life's business and financial
profiles and the impact of the same on CTBC Financial's and CTBC
Bank's credit profiles;
(4) The financial policies of the CTBC group and its major subsidiaries;
and
(5) Any material consequences for the group arising from the regulatory
sanction.
Moody's will also assess the potential synergies and operating challenges
faced by the CTBC group, should the acquisitions of Tokyo Star Bank
and Taiwan Life go ahead.
RATINGS LIST
The following ratings have been put on review for possible downgrade:
CTBC Financial Holding Co., Ltd.: A3 long-term
foreign currency issuer rating;
CTBC Bank Co., Ltd.: C- bank financial
strength rating/baa2 standalone credit assessment; A2/P-1
local currency and foreign currency long-term/short-term
deposit ratings and Baa3 foreign currency junior subordinated debt (issued
by its Hong Kong branch) rating.
RATING METHODOLOGY
The methodologies used in this rating were Global Banks published in May
2013, and Moody's Global Rating Methodology for Life Insurers published
in May 2010. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
CTBC Financial reported consolidated assets of TWD2.3 trillion,
while CTBC Bank reported consolidated assets of TWD2.1 trillion
at end-September 2013. Both entities are headquartered in
Taipei, Taiwan.
REGULATORY DISCLOSURES
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 Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see Moody's Ratings Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the time horizon in which a credit rating action may be after a review
or outlook action took place.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the ratings disclosure page on www.moodys.com/disclosures
for disclosures on significant Moody's shareholders and on certain
relationships between Moody's, its shareholders and/or rated
issuers.
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.
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 continues review of CTBC group's ratings, after regulator's enforcement announcement