Fubon Financial Holding Co (富邦金控), the nation’s largest financial service provider by assets, aims to increase its stake in overseas fixed-income investments, unfazed by their weakening credit profile, as they promise higher yields, senior executives said yesterday.
“We will channel more funds into overseas investments with fixed incomes,” attracted by their higher yields, Fubon Financial president Victor Kong (龔天行) told an investors conference.
To that end, the conglomerate has filed for regulatory approval for its plan to raise the ceiling on its overseas stakes to 45 percent of total investments, from 35.7 percent as of June 30, or NT$523.6 billion (US$18.02 billion), Kong said.
US fixed income investments account for 39.9 percent of the life insurance subsidiary’s, Fubon Life Insurance Co (富邦人壽), investment portfolio, Kong said.
Government bonds and Treasury bills make up 20.4 percent of the share, while mortgage-backed securities constitute another 31.9 percent, company data indicated.
“Taiwan has excessive savings and Fubon Life, as a long-term savings collector, has no choice but to seek investment instruments overseas because the domestic market is too small to absorb [idle] liquidity,” Kong said.
Fubon Life, Taiwan’s second largest life insurer by market share, generated 43 percent of the group’s net earnings in the first half, which saw its net income jump 83.5 percent to NT$7.53 billion from last year, company statistics showed.
Overseas yields for new funds hover at about 5.5 percent — higher than the 2 percent in Taiwan — even after factoring in hedging costs averaged at 103 basis points in the first half, Kong said.
Fubon Financial is not worried about a US sovereign default, saying the chance is remote, if not impossible, Kong said.
The recent downgrade of the US’ credit rating by Standard & Poor’s has no impact on the company’s asset profile as the rating change does not entail extra capital.
“The rating of ‘AAA’ has the same risk score as ‘AA+’,” Kong said.
The world picture would turn ugly, however, if the fiscal debt crisis spread to Spain and Italy, which might endanger the euro’s existence, he said.
Increasing uncertainties about the global economy also fueled concerns the central bank may halt interest rate hikes, dampening interest income at banking subsidiary Taipei Fubon Commercial Bank Co (台北富邦銀行), the lender’s president Jerry Harn (韓蔚廷) said.
Harn previously predicted the central bank would raise interest rates by 12.5 basis points each quarter, lifting his bank’s net interest margin by five to 10 basis points this year.
The expected improvement would not be realized if the central bank decides to slam on the brakes to help subdue equity market jitters.
Taipei Fubon Bank posted NT$5.82 billion in net profits for the first six months, up 28.03 percent from a year earlier, thanks to an improvement in its wealth management business, company data said.