Fubon Financial Holding reports decline in profits

Fubon Financial Holding Co (富邦金控), the nation's fourth largest financial group by assets, reported yesterday that profits shrunk last year from a year earlier, mainly due to weak profitability at its brokerage arm.

Fubon Financial posted net income of NT$14.32 billion (US$443 million), or NT$1.87 per share, last year, down 4.6 percent from NT$15.01 billion, or NT$2.02 per share, in 2004.

The figure is about 20 percent short of the company's original earnings forecast.

"The decline was mainly brought on by weak profits at our securities subsidiary," Fubon Financial president Victor Kung (龔天行) told an investor conference yesterday.

Fubon Securities (富邦證券) said net profit plunged by 57.8 percent to NT$917 million last year from NT$2.17 billion a year earlier, mainly on a decline in brokerage commissions because of the weak stock market as well as an NT$199 billion loss caused by a trading error in June last year.

Regarding dividends, shareholders -- who were paid a NT$1.7 cash dividend per share last year -- may see a bit less than that this year, Kung said.

Looking ahead, the financial holding firm will endeavor to expand profits this year in a difficult macro-environment, in particular snowballing credit and cash card bad debts, Kung said.

Kung declined to make a financial forecast for the year.

Fubon Financial's results did not surprise analysts

The outlook did not appear rosy, as the company needs time to adjust after an organizational restructuring, and faces an external risk from mounting unsecured consumer bad debts given uncertainties over proposed amendments to the Bankruptcy Law (破產法), said Jesse Wang (王嘉樞), head of research at BNP Paribas Securities (Taiwan) Co.

The planned amendments are aimed at helping debt-ridden credit and cash card borrowers.

Rising defaults on credit and cash cards prompted flagship Taipei Fubon Bank (台北富邦銀行) to raise provisions to NT$6.24 billion last year, up 75.2 percent from NT$3.56 billion in 2004.

The rising reserves helped improve the lender's coverage ratio to 44 percent last year from 35 percent the year earlier, and cut its non-performing loan (NPL) ratio to 2.42 percent from 2.75 percent in 2004.

Provisioning expenses will continue to soar this year to cover potential bad debts, Kung said without elaborating.

The bank will refocus on corporate and housing mortgage lending. It expects to boost total lending by a low double-digit rate from NT$570.5 billion last year, he said.

Regarding future expansion, the company has NT$15 billion to NT$25 billion of accessible capital and will continue to evaluate the possibility of acquiring banks in Taiwan and the greater China area, Kung said.