Sat, Feb 12, 2011 - Page 12 News List

Poor insurance earnings drag financials lower

By Crystal Hsu  /  Staff Reporter

Financial shares tumbled yesterday, led by insurance-oriented stocks, as investors cut their holdings amid disappointing earnings reports because of foreign-exchange losses.

The financial and insurance sub-index fell 4.29 percent, deeper than the TAIEX’s 2.57 percent fall, as the bearish sentiment also weighed on bank-centric stocks despite their improving profitability.

Cathay Financial Holding Co (國泰金控), parent firm of the nation’s largest insurer, dropped 5.39 percent to NT$48.25 yesterday, one day after the company announced a net loss of NT$1.47 billion (US$50.29 million) for last month.

That performance contrasted with a NT$1.29 billion net gain in December and translated into a loss per share of NT$0.14, company data showed.

Cathay Financial pinned the blame on a stronger New Taiwan dollar, which appreciated 3.5 percent against the US currency last month, pushing up hedging costs for its life insurance subsidiary.

Cathay Life Insurance Co (國泰人壽) suffered a bottom-line loss of NT$2.62 billion last month, company data showed.

Shin Kong Financial Holding Co (新光金控) also closed down near its daily limit, falling 6.86 percent to NT$12.90, after the firm reported a net loss last month of NT$3.52 billion in a filing to the stock exchange on Thursday. That translates into a loss per share of NT$0.42, reversing six consecutive months of gains.

Shin Kong Life Insurance Co (新光人壽), the group’s main source of income, reported a net loss of NT$3.74 billion, which it blamed on a poor hedging strategy.

Ken Shih (施耕宇), a financial analyst at Primasia Securities Co, said he expected currency exchange to remain a major downside risk for domestic insurers.

“The NT’s appreciation trend is likely to continue,” Shih said. “We suggest investors avoid insurance stocks, although we retain a long-term positive view toward the sector.”

Financial firms focused on banking and securities fared better last month, thanks to improving interest and fee incomes as well as a stronger equities market.

Fubon Financial Holding Co (富邦金控), the nation’s second-largest by assets, remained the most profitable among its peers, posting a net income of NT$2.87 billion last month, or earnings per share (EPS) of NT$0.34, it said in an exchange filing on Thursday.

Its banking subsidiary, Taipei Fubon Bank (台北富邦銀行), contributed NT$1.22 billion, or 42.51 percent, to its income, bolstered by its wealth management and other businesses.

Its life insurance arm, Fubon Life Insurance Co (富邦人壽), managed to stay in the black, reporting a net income of NT$650 million as its securities gains offset losses from currency hedging.

Chinatrust Financial Holding Co (中信金控), which includes the nation’s largest credit card issuer, posted a net profit of NT$1.08 billion last month, translating into an EPS of NT$0.10, the company said.

The group also gained from soaring lottery ticket sales, as well as profits from financial product transactions.

However, Fubon and Chinatrust closed down 1.68 percent and 4.81 percent to NT$38 and NT$21.75 respectively.

Vincent Ho (何銘銓), an assistant vice president at JPMorgan Asset Management Ltd, said profit-taking drove the market down, and the trend could last through the end of the month.

“We remain positive about domestic financial firms,” Ho said, adding that their earnings should improve as they benefit from “cross-strait banking liberalization.”

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