Tue, Mar 03, 2009 - Page 12 News List

Financial shares plunge on ratings downgrade

CONTRACTION Credit Suisse lowered its ratings on Cathay and Fubon after earlier revising its GDP forecast to minus 7.2 percent and predicting falling loan demand

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Cathay Financial Holding Co (國泰金控) and Fubon Financial Holding Co (富邦金控) dropped in Taipei trading after Credit Suisse Group lowered their ratings on concerns that weakening economic growth would hurt loan demand.

The financial sub-index dropped 6.3 percent, the most since Jan. 8, Taiwan Stock Exchange data showed. Cathay Financial, the nation’s largest financial services company, was downgraded to “underperform” from “outperform” by analysts Chung Hsu, Sherry Lin and Julie Yu, sending the stocklower by the daily limit of 7 percent to NT$26.10 (US$0.74) at the close of trade.

Financial companies accounted for five of the 10 biggest drags on the TAIEX yesterday, which dipped 2.9 percent, amid concern that the deepening global recession would hurt the outlook for corporate profits.

“Our economist’s recent downgrade of GDP forecast to minus 7.2 percent for 2009 suggests the operating environment for Taiwan banks will be much tougher than expected,” the analysts wrote.

PUBLIC SPENDING

“We expect banks to see a loan contraction of 1.8 percent in 2009 despite already taking into account some positive support from a pickup in government spending,” they said.

The government last month predicted that GDP would shrink 2.97 percent this year, reversing its November estimate of 2.12 percent growth. The economy contracted 8.36 percent in the three months ended Dec. 31, the fastest pace on record, as exports and business investment dropped.

Fubon, the nation’s second-largest listed financial services company, was lowered to “neutral” from “outperform,” Credit Suisse said in a report yesterday.

The brokerage also lowered its ratings on First Financial Holding Co (第一金), Chang Hwa Commercial Bank (彰銀) and Hua Nan Financial Holdings Co (華南金) to “underperform” from “neutral.”

Fubon fell 6.9 percent to NT$17.60, the lowest since Oct. 29. Morgan Stanley also downgraded the stock to “equal-weight” from “overweight” yesterday.

First Financial dropped 6.8 percent to NT$13.10, while Chang Hwa retreated 5.6 percent to NT$9.63. Hua Nan plunged 6.8 percent to NT$15.70.

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