Wed, Jul 16, 2008 page12

• Cathay tops links to ailing US firms

  EXPOSURE Among the 33 financial firms required to report any investment link to Fannie Mae and Freddie Mac, nine reported no exposure and two recognized losses

  • By Joyce Huang and Crystal Hsu / STAFF REPORTER
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  Cathay Financial Holding Co (國泰金控), the nation’s largest financial service provider by assets, topped the list of domestic financial institutions that have exposure to investments linked to the two ailing US mortgage-finance companies, Fannie Mae and Freddie Mac.

  Cathay Financial said in a filing to the stock exchange yesterday that its exposure to the two US firms reached NT$239.14 billion (US$7.86 billion). However, the company said it did not expect to post losses from the investments.

  The Financial Supervisory Commission (FSC) had said earlier that most of the investments by Taiwanese insurers were quality investments that should incur limited losses.

  Shin Kong Financial Holding Co (新光金控) has the second highest exposure at NT$140 billion, but did not report losses.

  Union Bank of Taiwan (聯邦銀行), Fubon Financial Holding Co (富邦金控), the nation’s second-biggest banking group, and Taiwan Life Insurance Co (台灣人壽) ranked third, fourth and fifth with their investment exposure reaching NT$21.4 billion, NT$20.6 billion and NT$13 billion respectively, their exchange filings showed yesterday.

  Among the 33 financial companies that reported investment links to the two US mortgage-finance companies, only Mega Financial Holding Co (兆豐金控) and Taiwan Business Bank (台灣企銀) recognized losses of NT$20 million and NT$10 million respectively, their stock filings showed.

  Nine financial companies — two financial holding firms, four banks and three non-life insurers — have no investments linked to the two companies, FSC statistics showed.

  Grace Lin (林瑞雲), executive vice president of Mega Financial, said the company owned NT$3.8 billion in stocks and collateral bonds issued by the two US mortgage companies, with mark-to-market losses standing at NT$20 million.

  Lin said she saw no cause for concern as the amount involved was moderate. However, the US subprime crisis has already eroded Mega Holdings’ profits by NT$4 billion in the first half of this year.

  Yuanta Financial Holdings Co (元大金控), the nation’s fifth-largest financial service provider by assets, put its exposure to Fannie Mae and Freddie Mac at about US$3.5 million, company chairman and CEO Yen Ching-chang (顏慶章) said yesterday.

  Meanwhile, the central bank said yesterday its financial standing remained robust but declined to reveal its portfolio in a measured attempt to calm public jitters over the ongoing financial woes plaguing the two top-tier US lenders, whose bonds are widely owned by foreign governments.

  Central bank Deputy Governor George Chou (周阿定) told an emergency news conference that as of yesterday morning, the value of the bonds in its possession far exceeded that of their costs, meaning the bank remained financially sound.

  “The bank only purchases long-term government bonds with top credit ratings,” Chou said. “The two troubled US lenders, Fannie Mae and Freddie Mac, have the backing of the government there.”

  The companies, known as government-sponsored enterprises, touch nearly half of US mortgages by either owning or guaranteeing them. The debt securities they issue to finance their operations are widely owned by foreign governments, pension funds, mutual funds, big companies and other large institutional investors.

  While the FSC has asked all domestic financial institutions to publish their exposure to Fannie Mae and Freddie Mac, Chou said that no central bank around the world is subjected to the requirement.

  “Such disclosure will inevitably raise hackles in the financial market,” Chou said, urging the public to have confidence in the local stock market. Local share prices dived 4.51 percent to close at 6,834 points yesterday, the lowest since President Ma Ying-jeou (馬英九) took office on May 20.
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