Fubon optimistic about earnings recovery

Fubon Financial Holding Co (富邦金控), the nation's sixth-biggest financial group by assets, expects earnings to recover from a trough this year, backed by falling provisioning expenses as the bad consumer loan storm stabilizes, the company said yesterday.

"We made enough reserves last year to cover unsecured loan defaults. Our provisioning policy should return to normal this year, as we won't need to set aside as much money to cover bad debts," Fubon Financial president Victor Kung (龔天行) told an investors conference yesterday.

But Kung does not expect its consumer banking to make profits, in view of an estimated loss of over NT$1 billion (US$30.4 million) in interest income as interest rates of unsecured lending plunged to an average 3.5 percent from up to 14 percent before.

Fubon Financial chairman Daniel Tsai (蔡明忠) said in January that the company's earnings this year would surge 50 percent to above NT$12 billion as the sector recovered from the consumer credit abuse problem.

Kung however was tight-lipped about the target, saying only that "we understand this is what he is expecting."

Fubon Financial reported net earnings of NT$8.4 billion, or NT$1.09 per share, last year, down 21 percent from NT$10.64 billion, or NT$1.39 per share, a year earlier as a result of soaring reserves cost of NT$15 billion, up from NT$11.44 billion over the same period.

Consequently, profits of banking unit Taipei Fubon Bank (台北富邦銀行) plummeted by 91 percent to NT$440 million last year.

Fubon Financial's profitability has worsened in the past two years. Its return on assets ratio fell to 0.5 percent last year from 0.67 percent a year earlier and from 1.08 percent in 2004, while its return on equity ratio dropped to 5.3 percent last year from 6.8 percent in 2005 and 9.9 percent in 2004.

Sophia Cheng (程淑芬), president of Merrill Lynch Taiwan Ltd, suggested the company may be considering capital reduction to increase shareholder returns.

Kung said yesterday that the financial group had excessive capital estimated at around NT$20 billion, but the company had no plans for capital reduction.

The Financial Supervisory Commission said there were no such precedents and the regulator's decision in such a case would depend on the capital reduction purpose and details.