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Indictment weighs down Shinkong

Shares of Shinkong Financial Holding Co (新光金控), the nation's seventh-largest financial services provider by assets, plunged 4.4 percent yesterday after the shocking news on Friday evening that its chairman, Eugene Wu (吳東進), had been indicted for insider trading.

Shinkong shares lost NT$1.45 to close at NT$31.55 on the TAIEX, their lowest price since July 13.

The drop appropriately reflected retail investors' worries about the company's corporate governance and reputation, while institutional investors are not bearish about the company's performance, said Wang Chien-ming (王建民), an analyst at Capital Securities Corp (群益證券).

Shinkong Financial reported rosy achievements for the first seven months of the year with unaudited after-tax profits reaching NT$6.47 billion, or NT$1.91 per share, already surpassing its annual earnings forecast.

SUPPORT

"In the short term, Shinkong Financial shares still have some support, but there is not yet any big growth momentum in sight for them to shoot up," Wang said.

SinoPac Securities Corp (建華證券) expressed confidence in the financial group's operations and has a target price of NT$40.

"The insider trading news will create a short-term psychological impact, but there is no problem with Shinkong Financial's business operations," the brokerage house said in a statement.

Shinkong spokesman Victor Hsu (許澎) declined to comment on the indictment, saying that Wu is currently abroad and that the company cannot make any comment before it receives the indictment.

Wu, whose business turf also encompasses natural gas, hospital and construction operations, was indicted by the Taipei Prosecutors' Office last week for violating the Securities and Exchange Law (證券交易法) in June 2002 when he sold 1,510 Shinkong shares before announcing that the company would have to sharply revise downward its profit forecast for that year.

This indictment has sparked concerns as to whether Wu is still eligible for the chairmanship, as insider trading is deemed a serious crime.

Liu Tai-ying (劉泰英), former head of the China Development Holding Corp (開發金控), and Walter Lin (林華德), former chief of Waterland Financial Holding Co (國票金控), were both forced out of their chairmanships due to their involvement in financial scandals, even before they were sentenced or indicted.

EVIDENCE NEEDED

But the Financial Supervisory Commission, the nation's top financial regulator, yesterday adopted a low-key attitude about Wu's case, saying that the commission would have to secure concrete evidence before making any decision, such as whether Wu has to leave his post.

"We have had the Banking Bureau ask for the original copy of Wu's indictment as it's most important to garner correct information.

Then we'll launch an administrative investigation into the case. Now it's too early to jump to conclusions about Wu's chairmanship," said Lin Chung-cheng (林忠正), the commission's spokesman.
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