Aside from profit-taking pressure following a recent rise on news of cross-strait financial talks, financial stocks dropped yesterday amid renewed concern about the business prospects of Taiwan High Speed Rail Corp (THSRC, 台灣高鐵).
The banking and insurance sub-index closed 1.15 percent lower in trading yesterday, led by a 1.85 percent drop in Cathay Financial Holding Co (國泰金控), compared with a 0.32 percent fall on the benchmark TAIEX.
“Banks retreated on greater uncertainty spawned by reports that the government might take over the money-losing [Taiwan] High Speed Rail,” SinoPac Securities Corp (永豐金證券) said in a note yesterday.
Investors were concerned about whether more banks would act to recognize losses on their investment in THSRC in terms of preferred stocks.
Among the rail company’s 4.63 billion preferred shares, state-owned or controlled banks own about 15.3 billion, led by Bank of Taiwan (臺灣銀行) with 250 million and Taiwan Business Bank (臺灣企銀) with 150 million.
Last week, Macquarie Research cuts its investment rating on Mega Financial Holding Co (兆豐金控) to underperform from outperform, on concerns that the company could post losses on its NT$4 billion (US$123.24 million) in preferred shares in THSRC, the operator of the nation’s first high-speed rail system, which would have a negative impact on its full-year earnings.
Last month, Fubon Financial Holding Co (富邦金控), whose banking unit is one of the rail firm’s five founding shareholders, announced a writeoff of NT$2.4 billion from its impaired equity investment in THSRC as a way to show responsibility to its shareholders.
That followed China Steel Corp’s (中鋼) announcement by executive vice president and spokesman Chung Lo-min (鍾樂民) in October that the company planned to write off about NT$4 billion in its investment in THSRC.
Financial stocks have risen 33.4 percent this year as the banking and insurance sub-index closed at 869.74 points on the main bourse, on the back of investor expectations of the signing of a memorandum of understanding (MOU) on cross-strait financial supervision with China to help Taiwanese banks increase their presence there.
The TAIEX has risen 63.4 percent over the same period.
Mega Securities Co (兆豐證券) analyst Alex Huang (黃國偉) said yesterday, however, it was now a question of when the MOU would be signed, while a report by Taiwan Ratings Corp (中華信評) said the financial sector might continue to see poor financial results in the near term because of a sluggish economy.
“Competitive market conditions and low interest rates continue to prevent significant improvement in banks’ consistently thin net interest margins,” Taiwan Ratings credit analyst Eva Chou (周怡華) said in the report.
The agency said the nation’s economy was likely to remain volatile in the upcoming quarters, although the worst may be over.
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