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Announcement:

Moody's says Chinatrust ratings unaffected by deal announcement

Global Credit Research - 30 Mar 2011

Singapore, March 30, 2011 -- Moody's Investors Service says that Chinatrust Financial Holding Company's (CFHC) long-term foreign currency A3 issuer rating is unaffected by its decision to acquire Metlife Taiwan Insurance Company Limited (MLT, unrated).

The rating outlook is stable.

The ratings on Chinatrust Commercial Bank (CTCB) are also unaffected:

• C- bank financial strength rating, which maps to a Baa2 long-term scale rating

• A2/P-1 local currency and foreign currency long-term/short-term deposit ratings

• Baa3 foreign currency junior subordinated debt (issued by its Hong Kong branch) rating

The ratings outlook is stable.

CFHC announced on March 28th, 2011 that its Board of Directors had approved to acquire a 100% stake of MLT, the Taiwanese subsidiary of Metlife, Inc. (senior unsecured debt rating A3, negative). The transaction is valued at USD180 million (approximate NT$5.3 billion) and will be totally cash funded.

"CFHC's rating is unaffected mainly because the transaction comprises only 3.3% of its equity and the double leverage is expected to be maintained at a healthy level after the merger. However, negative pressure on its rating could develop if the assets or capital of its insurance business grew to comprise 10% of the group's amount or if its double leverage was increased to over 120%," says Christine Kuo, a Moody's Vice President and Senior Credit Officer.

"Adding a sizable and rather weak subsidiary to the group would create downgrade pressure on CFHC," she added.

The ratings for CTCB are also unchanged as the deal by its parent is not expected to result in significant changes in the bank's performance or financial policy. However, if CFHC makes further sizeable acquisitions, CTCB may need to upstream more dividends to its parent, which would be negative to CTCB's ratings.

CFHC's earnings diversification would improve slightly overtime due to the acquisition. However, MLT's negative spread problem could more than negate the diversification and synergetic benefits to CFHC, particularly because of the very challenging operating environment for insurers in Taiwan.

CTCB could benefit from MLT cross selling bank products, but the benefit is expected to be limited since MLT has no agency force. Moreover, the acquisition could lead to adjustments to the bank's current open-platform business model, which may affect its bancassurance sales of other life insurers over the longer term.

The deal is subject to regulatory approvals, and CFHC expects to complete the transaction in 2H2011.

MLT is the 4th largest foreign life insurer in Taiwan by gross premium. It reported NT$88.9 billion in assets and NT$7.5 billion in shareholder's equity at end-2010, based on CFHC's announcement. About 47% of MLT's business distribution is through telemarketing, 45% through bancassurance and 8% through brokers. On a pro-forma basis, MLT represents 5% in assets and 4% in shareholders' equity (consolidated). However, its overall market share among all life companies in Taiwan is less than 1%.

MLT's risk-based capital ratio (RBC) was 205% at end-December 2010, which is just over the regulatory minimum of 200%. While CFHC does not think it necessary to inject capital to MLT in the near term as MLT's equity has increased since end-2010, it may need to recapitalize MLT over time to support its business growth.

CFHC is headquartered in Taipei, Taiwan with a reported consolidated assets of NT$1.9 trillion at end-December 2010.

Singapore
Christine S. Kuo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Hong Kong
Stephen Long
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
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Singapore
JOURNALISTS: (852) 3758 -1350
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Moody's says Chinatrust ratings unaffected by deal announcement
No Related Data.
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