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Citigroup upbeat about prospects for nation's banks

Citigroup said it remained upbeat about the prospects for Taiwanese banks, despite several local financial heavyweights having come under pressure from global credit concerns.

"Banks are likely to benefit more from a valuations basis," compared with local insurance companies in investment portfolios, Citigroup analyst Braford Ti (鄭溫煌) said in a client note yesterday.

Ti also attributed his positive view on the banking sector to his confidence in the nation's wealth management business.

"Wealth management fees remained firm year-to-date as demand for currency-linked products offset reduced demand for overseas mutual funds, which accounted for the lion's share of fees last year," he wrote in the note.

Chinatrust Financial Holding Co (中信金控), First Financial Holding Co (第一金控) and Yuanta Financial Holding Co (元大金控) are favored picks by the Citigroup Global Market analyst, the note showed.

However, "global market uncertainties and concerns over overseas investments" would likely weigh on valuations of Cathay Financial Holding Co (國泰金控) and Shin Kong Financial Holding Co (新光金控), the parent groups of the nation's two largest life insurance companies, the note said.

Lehman Brothers analyst Sarah Hung (洪月娟) yesterday also raised her recommendation on the nation's financial stocks to "positive" from "neutral," citing positive outlook after the presidential election on Saturday.

As both ruling and opposition parties' presidential candidates favor closer economic and trade ties with China, financial stocks are likely to see "rerating" in the next two to three years, Hung said in her note to clients yesterday.

Hung projects an upside potential of 7 percent to 13 percent for financial share prices this year. She favored bank shares -- including Chinatrust Financial, Cathay Financial and Mega Financial Holding Co (兆豐金控) -- over those of insurance companies, which are heavily influenced by the New Taiwan dollar's recent appreciation, the Lehman Brothers note showed.

The analysts' remarks came as the Financial Supervisory Commission (FSC) said yesterday that the growing US subprime mortgage crisis and credit crunch has had only a minimal impact on Taiwan's financial sector.

FSC officials said the Taiwanese financial sector's losses stemming from the US subprime crisis amounted to about NT$25 billion (US$814.6 million).

However, the FSC said, the impact has been limited, as the NT$20 billion in losses suffered by Taiwanese banks represented only 0.089 percent of their total assets, while the NT$5 billion lost by insurance companies represented just 0.059 percent of the total assets of the nation's insurers.

The FSC's latest tallies show the nation's banks and insurance companies held a total of NT$75 billion in subprime products and NT$21.2 billion in structured investment vehicles as of the end of January this year.
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