Cathay Financial predicts healthy profit rise

Cathay Financial Holding Co (國泰金控), the nation's biggest financial services provider, expects net income to increase 10 percent this year after considering the probable impact of the election on the economy.

Cathay Financial forecast profit of NT$22.7 billion (US$681 million) for this year, according to a statement issued through the Taiwan Stock Exchange Corp. The company reiterated it had unaudited profit of NT$20.6 billion last year.

"We had two profit forecast scenarios in mind: one aggressive and one conservative," said Lee Chang-ken (李長庚), executive vice president at Cathay Financial, in a phone interview in Taipei.

"We decided to pick the conservative approach because what happened in the last few days after the election may have a negative impact on the economy and equity market," Lee said.

Cathay Financial's forecast is prudent, given "its relatively high level of investment in equities and real estate," said Simon Chao (趙永宏), who helps manages US$17 million at President Investment Trust Corp (統一投信) in Taipei.

"The financial business is domestic-driven and would be hit harder than exporters" by political instability, he said.

Financial companies that haven't yet made their profit forecasts for this year may follow the example of Cathay Financial, Chao said.

Under government regulations, companies have to publish a new forecast if they expect profit to fall more than 20 percent short of their original forecast.

The "fundamentals of the economy will be adversely affected if the issue lingers longer," Lee said.

Goldman Sachs Group Inc on Monday downgraded its investment recommendations on some Taiwanese banks, including Chinatrust Financial Holding Co (中信金控) and Mega Financial Holding Co (兆豐金控). The strong economic outlook underpinning the performance of the nation's banks may have to be revised if the election crisis doesn't end soon, Goldman analysts said in the report.

"We believe that the financial sector, given its domestic demand focus and traditional political sensitivity, could get hit harder than the overall market," Goldman said in a research report.

The nation's economy grew 5.2 percent in the fourth quarter, its biggest gain in a year.

For the nine months ended Sept. 30, Cathay Financial had net income of NT$20.9 billion, 61.4 percent of it coming from its life insurance unit, Cathay Life Insurance Co (國泰人壽), and 36.3 percent from its banking business.

As Taiwan's largest life insurer, Cathay Life had total assets of NT$1.39 trillion at the end of September and had 61 percent invested domestically.

Fubon Financial Holding Co (富邦金控), the nation's fifth-largest financial services provider, on March 12 forecast net income will rise 14 percent to NT$16 billion this year. Chinatrust Financial on Feb.10 said it expects a 23 percent rise in this year's pretax profit.