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Rating Action:

Moody's upgrades Fubon Securities' Rating to Baa1; outlook stable

24 Feb 2017

Hong Kong, February 24, 2017 -- Moody's Investors Service has today upgraded the issuer rating of Fubon Securities Co., Ltd. (Fubon Securities) to Baa1 from Baa2. The company's rating outlook remains at stable. The rating action follows the publication on 22 February of the new securities industry market makers rating methodology. This is now the primary methodology that Moody's uses to rate securities industry market makers globally, except in jurisdictions where certain regulatory requirements must be fulfilled prior to the new methodology's implementation.

RATINGS RATIONALE

Moody's rating action on Fubon Securities follows the publication of Moody's new securities industry market makers rating methodology, which incorporates a number of significant changes and enhancements from Moody's previous rating methodology for securities firms. Moody's has also published a separate new rating methodology for securities industry service providers.

These changes and enhancements for rating market makers include the introduction of new financial ratios such as a balance sheet leverage metric and stressed liquidity and funding ratios; the dynamic weighting of operating environment conditions that can adversely influence firms' creditworthiness; the incorporation of specific qualitative factors as direct notching adjustments to ratings; and the incorporation of Moody's joint default analysis (JDA) framework to consider affiliate and government support, if any.

The upgrade of Fubon Securities' issuer rating to Baa1 from Baa2 mainly reflects the incorporation of Moody's JDA framework for considering affiliate support for the company, which led to a widening of affiliate support uplift from one to two notches. Moody's standalone assessment for Fubon Securities remains unchanged at baa3, and takes into account the company's good funding and liquidity profile, sound profitability, and limited balance sheet leverage. The standalone assessment also takes into account intense competition and the maturity level of Taiwan's capital markets.

Fubon Securities' holdings of equity and fixed income securities investments have increased steadily since 2013. Nevertheless, the company continues to maintain conservative balance sheet leverage, with total assets and off-balance sheet exposures amounting to a low 3.0x its tangible common equity as of end-September 2016.

The company's funding consists principally of short-term repurchase agreements and commercial paper issuance, which are highly confidence sensitive. The company has sizable holdings of cash and liquid securities, and lines of credit from commercial banks that can be used to repay such liabilities.

Fubon Securities reported high average return on assets of 2.1% between 2013 and the first nine months of 2016, although intense competition has and will continue to weigh negatively on the company's equity brokerage commission income. The company's brokerage, margin lending and proprietary trading incomes are all heavily influenced by overall stock trading volume and market conditions on the local bourse.

Fubon Securities comprises between 1% - 2% of the group's overall assets. It has large life insurance and bank affiliates under the parent financial holding company. The company's brokerage and wealth management services are integral to the group's overall retail customer product offerings. The parent holding company is obligated to provide support to the securities company in the event of need per Taiwan's Financial Holding Company Act. Moody's considers the likelihood of affiliate support for Fubon Securities as very high.

Factors that could lead to an Upgrade

Fubon Securities' standalone assessment may be adjusted higher if it (1) improves its funding and liquidity profile; (2) improves its market position without incurring additional risks; and (3) reduces its earnings volatility.

The company's final ratings could be upgraded if the group's ability to provide support strengthens, in the event the financial profiles of the company's insurance and bank affiliates improve.

Factors that could lead to a Downgrade

Fubon Securities' rating can be downgraded 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.

A material deterioration in the credit profiles of its banking and insurance affiliates could also pressure Fubon Securities' rating.

The principal methodology used in this rating was Securities Industry Market Makers published in February 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Fubon Securities is the third-largest brokerage firm in Taiwan with an equity brokerage market share of 5%. The company reported total assets of TWD91 billion as of September 2016. It provides equity and futures brokerage and offers fund products primarily to retail customers, and is wholly owned by Fubon Financial Holding Co., Ltd.

RELATED RESEARCH REFERENCES

For further details please refer to the following:

» Press release: Moody's publishes its updated methodologies for rating securities firms

https://www.moodys.com/research/--PR_362296

» Rating Methodology: Securities Industry Market Makers

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1038412

» Rating Methodology: Securities Industry Service Providers

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1042321

» Securities & Exchanges page on moodys.com

http://www.moodys.com/securitiesandexchanges

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.

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, CFA
Vice President - Senior 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

Minyan Liu
Associate Managing Director
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

No Related Data.
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