Thu, Oct 26, 2006 - Page 12 News List

Tough to stop red ink, Chinatrust Financial warns

QUARTERLY RESULTS Lingering consumer debt woes plus probes into some top executives are hindering efforts to return the group to the black

By Amber Chung  /  STAFF REPORTER

Debt and scandal-plagued China-trust Financial Holding Co (中信金控) is likely to remain in the red this year, despite hopes that it might break even in the current quarter, it said yesterday.

Chinatrust Financial, the nation's seventh-largest financial group by assets, posted a net loss of around NT$165 million (US$5 million) for the third quarter, down 90 percent from the previous quarter, due to smaller provisions.

The company made NT$8.9 billion in provisions in the third quarter, down 32.6 percent from the previous quarter.

For the first nine months of this year, Chinatrust Financial incurred a net loss of NT$2.42 billion, or NT$0.45 per share, compared with profits of NT$14.06 billion, or NT$2.15 per share, a year ago.

"We are optimistic about our performance in the fourth quarter," president James Sheu (許建基) told a press conference yesterday.

"But it will require a great deal of effort to break even this year," Sheu said, although he refused to give profit estimates for the year.

The group's flagship unit, Chinatrust Commercial Bank (中國信託商銀), the nation's largest credit card issuer, is deep in the red because of the consumer debt issue.

"Chinatrust Commercial Bank is not likely to break even by the end of the year as expected," chairman Charles Lo (羅聯福) said.

The estimate of annual provisioning expenses made to cover potential bad loans increased to NT$36.7 billion this year, NT$700 million more than previously forecast, the company said.

"The bad consumer debt issue is nearing its end, and we expect our unsecured consumer lending business to become profitable in the first quarter of next year," Lo said.

Provisioning cost is expected to reduce next year as the issue ebbs away, he said.

Chinatrust Financial's fundamentals are sounder than its competitors, considering its growing profits before the provisioning expenses, one analyst said.

But the fact that the company is under investigation has made its share price outlook uncertain, said Shirley Yang (楊慶祺), who manages NT$1.2 billion of funds at Invesco Taiwan Ltd (景順投信).

Concern over corporate governance has had an adverse impact on foreign investors' sentiment toward Chinatrust Financial, she said.

Yang said she expected the group to turn profitable, with earnings estimated at NT$2.5 per share next year, and a sustained share price at NT$21 to NT$22.

Prosecutors are investigating alleged irregularities in Chinatrust Financial's investment in Mega Financial Holding Co (兆豐金控). Three key executives have been detained.

"This incident will not change our long-term expansion strategy," Lo said.

"Organic growth is not enough to help us become a regional player," Lo said. "We need to grow in our home market so we can expand overseas, which is the reason for our takeover move on Mega Financial."

The bank aims to expand in targeted overseas markets, he said, noting overseas income makes up 13 percent of total income now.

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