Fubon expects 15% profit growth in 2004

Fubon Financial Holding Co (富邦金控), Taiwan's second-largest financial company by market value, said profit will rise at least 15 percent every year through 2004, as Taiwan recovers from its worst recession on record.

The owner of Taiwan's largest property insurer expects brokerage and banking operations to generate about four-fifths of total profit, with the rest coming from insurance, Managing Director Ng Wing-fai (吳榮輝) said in an interview.

Formed last year under a new law letting banks, brokers and insurers operate under a single roof, the affiliate of Citigroup Inc is betting that the export-led recovery in Taiwan will fuel demand for loans from both companies and individuals.

"We are at the beginning of an economic cycle," Ng said.

Our business diversity "helps us to even out some of the volatility."

Fubon last week reported first-half net income rose 43 percent to NT$5.1 billion (US$154 million), as earnings from banking and securities trading more than compensated for a drop in profit at its insurance unit, whose reinsurance costs rose in the aftermath of the Sept. 11 terrorist attacks.

The company expects a one-fifth gain in earnings this year to NT$10.8 billion.

"They have one of the best business mixes among all the financial groups in Asia and in Taiwan," said Devan Kaloo, who helps manage US$3.5 billion at Aberdeen Asset Management in Singapore. "If they deliver what they say they are going to deliver, then I can't see why we won't be long-term shareholders."

Fubon says earnings will rise but analysts say it must prepare for intensifying competition for loans as interest rates, which have been cut to spur the economy, start to rise.

"Consumer banking, which Fubon wants to focus on, is very competitive," said William Fong (方偉昌), a banking analyst at Primasia Securities Co in Taipei. "This year, interest rates are very low, so they can maintain a very good interest spread.

Still, this year is quite critical for them to expand their fee-based income" as interest rates may increase.

Fubon Bank (富邦銀行), which cut its non-performing loan ratio to about 1.9 percent from 3 percent after selling NT$5 billion of bad loans, also needs to make sure that new lending doesn't sour.

Shares in Fubon Financial, which started trading in December after taking over Fubon Insurance Co (富邦產險), Fubon Securities Corp (富邦證券), Fubon Bank and Fubon Life Assurance Co (富邦人壽), have fallen 4.7 percent in the past three months compared with a 13 percent drop in the main TAIEX in the same period. Citigroup owns a 15 percent stake in Fubon.

The company, which is competing with rival Cathay Financial Holding Co (國泰金控) for control of United World Chinese Commercial Bank (世華銀行) and with four others for control of Taipei Bank, already derives almost two-fifths of its earnings from lending activities.

Of first-half income, 37 percent came from the bank, 41 percent came from the securities business while insurance profits -- which fell a fifth from a year-earlier -- contributed 22 percent, Fubon said.

"That's the advantage of being a financial conglomerate," said Ng. "In one business, you take a hit; you push harder in other businesses where there's room for growth."