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Global Credit Research - 10 May 2010
Hong Kong, May 10, 2010 -- Moody's Investors Service has upgraded the issuer rating of Fubon
Securities Co Ltd (Fubon Securities) to Baa2 from Baa3. The rating
outlook is stable.
This rating action concludes the review for possible upgrade initiated
on January 28, 2010.
"The upgrade reflects Moody's belief that, in case of
stress, its parent company Fubon Financial Holding Company Ltd (FFHC)
would provide support, either in the form of liquidity or capital,
as required by Taiwan's Financial Holding Company Act,"
says Sally Yim, a Moody's Vice President and Senior Analyst.
"This conclusion is based in turn on our consideration that Fubon
Securities is and will remain one of the core subsidiaries of FFHC.
Therefore, its rating incorporates certain lift stemming from parental
support," says Yim.
According to Taiwan's Financial Holding Company Act, a financial
holding company must ensure the sound management of the business activities
of its subsidiaries.
As the aggregate financial strength of FFHC is stronger than the stand-alone
financial strength of Fubon Securities, Moody's expects FFHC
to provide the necessary support to Fubon Securities, in case of
stress. Besides, we believe that FFHC will have the incentive
to support Fubon Securities to prevent contagion risks to its other bank
or insurance subsidiaries. Such support would come in the form
of resources either from its bank or insurance subsidiaries, or
from fund-raising in the capital markets.
Over the last few years, Fubon Securities has consistently contributed
to 10%-15% of FFHC's earnings. It integrates
well with Taipei Fubon Commercial Bank (TFCB), its bank affiliate,
to provide securities brokerage, underwriting and wealth management
services. Its investment function is highly integrated with that
With regard to its intrinsic financial strength, Moody's considers
its position as one of the top brokerages in Taiwan and its strong brand
Furthermore, its capital position is very strong when compared to
its peers and had a regulatory capital adequacy ratio of 440.3%
Fubon Securities' rating also incorporates Moody's recognition
that Fubon Securities could be called upon to de-capitalize again
in order to support FFHC's growth aspirations through M&As and
greenfield investments. Fubon Securities last reduced its capitalization
by NT$5 billion in December 2008.
The volatile nature of the Taiwan stock market could also affect the stability
of both brokerage revenue and income from the trading and valuation of
securities. Further, Taiwan's securities industry remains
highly competitive as consolidation continues, and this situation
will pressure margins.
In the near to medium term, there is limited potential for further
upgrade. However, in the long-term, the rating
could be upgraded if Fubon Securities achieves 1) a significant improvement
in its market position and franchise, with market share greater
than 10% and pre-tax earnings greater than US$180
million; 2) successful business diversification to reduce earnings
(pre-tax margin) volatility to below 20%; and 3) a
noticeable enhancement to its risk management practices.
On the other hand, the rating could be downgraded if 1) FFHC's
rating is downgraded, which could be a result of substantial deterioration
in the financial conditions of FFHC and its major group affiliates;
2) Fubon Securities further reduces its capitalization significantly,
say, by greater than 20%; 3) it acquires, or includes
high-risk businesses that increase overall risk, or cause
a deterioration in its capital base; or 4) it shows significant weakness
in risk control, in particular operational risk.
Moody's last rating action on Fubon Securities was on January 28,
2010 when it placed its Baa3 rating on review for possible upgrade.
The principal methodology used in rating Fubon Securities is the "Global
Securities Industry Methodology", published in December 2006.
This is available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this company can also be found in the Rating Methodologies sub-directory
on Moody's website.
Fubon Securities Co Ltd is one of the top 3 securities firms in Taiwan.
As of December 31, 2009, total assets were NT$53.4
billion, and shareholders' equity, NT$31.1
Vice President - Senior Analyst
Financial Institutions Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Moody's upgrades Fubon Securities to Baa2; outlook stable
Christine S. Kuo
VP - Senior Credit Officer
Financial Institutions Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
No Related Data.
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