Taiwan Ratings Corp (中華信評) yesterday revised down its outlook for Mega Financial Holding Co (兆豐金控) from “stable” to “negative” amid concerns over the financial service provider’s risk profile.
“The outlook revision reflects increased uncertainty over Mega Financial’s risk appetite and risk management policies as well as its future exposure to additional contingent liabilities,” Serene Hsieh (謝雅瑛), an associate director at the ratings agency’s financial service rating division, said by telephone yesterday.
The ratings revision came one day after the financial service provider’s board approved a proposal to allow its banking unit, Mega International Commercial Bank Co (ICBC, 兆豐商銀), to purchase the Diamond Bond Fund’s loss-making asset-backed commercial paper (ABCP) linked to failed US investment bank Lehman Brothers. The fund is managed by another group member, Mega International Investment Trust Co (兆豐國際投信).
Hsieh said Taiwan Ratings would closely monitor Mega Financial’s risk management, although it believed that the loss provision of NT$939 million (US$29.35 million) from the NT$1.878 billion ABCP asset purchase “will have no significant negative impact on ICBC or on the parent financial group’s financial profile.”
“If the company comes up with supporting measures to manage potential losses from the ABCP asset purchase and incurs no further losses from other funds, the outlook rating may see an upward revision at any time,” she said, adding that Taiwan Ratings was surprised at the group’s decision to transfer losses from its fund investors to its subsidiary bank.
The outlook on Mega Financial’s rating may be revised to “stable” if the group could demonstrate that sufficient risk management and oversight are in place across the group,” Taiwan Ratings said.
The rating, however, may also be lowered if there are significant additional resource transfers from Mega Financial to other contingent liabilities of the group beyond the scope of the group’s risk management ability, it said.
In related news, the bank’s labor union yesterday called on the top managers of the investment trust unit to resign.
“Trust unit president Chen Chung-hsiang (陳忠憲) should step down immediately and chairwoman Beth Wei (魏美玉) should be reshuffled to shoulder responsibility for poor risk management,” the union said in a statement.
The union said it would file a lawsuit against the board of Mega Financial and the bank for their dubious decision to transfer the trust unit’s loss-making assets to the bank, the statement said.
The union said it suspected insider trading of the holding group’s shares and urged the financial regulator to look into the matter.
Wei could not be reached for comment yesterday.
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