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Fubon stock falls sharply

Investors yesterday dumped shares in Fubon Financial Holding Co after the Taiwanese company and Citigroup Inc jointly announced on Monday that they would end their strategic partnership.

Fubon Financial was limit-down NT$2.10 at NT$29.00 on the TAIEX after Citigroup said it intended to sell 70 million shares, or a 0.8 percent stake, in Fubon. Citigroup said it would then consider selling off its entire holding.

The shares will be available on the market from tomorrow. After the sale is completed, Citigroup's representative on the Fubon board, Stephen Long, will stand down.

Investors, who tried to sell off 17 million shares, worried about Fubon's direction after the split.

But market watchers said the decision would be helpful to Fubon.

"The planned sale actually gives Fubon more room and flexibility in consolidating its future market as it no longer needs a nod from Citigroup for its plans,'' said Sherry Lin (林淑娥), a banking analyst at Credit Suisse First Boston.

The planned sale by Citigroup of its 10.2 percent stake is expected to "have a negative impact on the share price in the near term, but the magnitude should be limited," Credit Suisse said in a research report.

"The market has speculated about such a transaction since November 2003, when the lock-up period for Citigroup to sell Fubon shares expired," the report said.

Vice Minister of Finance Susan Chang (張秀蓮) said the partnership break-up should not be viewed as a vote of no-confidence by foreign investors in the nation's capital markets.

Instead, she said, the decision was made by the two companies so that they could pursue separate growth strategies.

Of Taiwan's 14 financial holding companies, Fubon Financial boasts a good franchise network, with relatively diverse operating units including banks, securities companies, insurance companies and other financial institutions, said Taiwan Ratings Corp, a local arm of the ratings agency Standard and Poor's .

With capital stock of NT$82.5 billion and sound financial reports, Fubon is still a "stable" stock, said Alan Tseng (曾炎裕), vice president at Capital Securities Corp.

Capital stock refers to the number of shares authorized for issuance by a company's charter, including both common stock and preferred stock.

"I don't think the departure of Citigroup will have a major negative impact on Fubon's operations," Tseng said.

Fubon reported a return on assets of 1.41 percent and a return on equity of 13 percent for the first quarter of the year. The company predicted it would raise its earnings per share to NT$2.17 this year from NT$1.9 last year.

Fubon may not buy back its shares to bolster its share price,Tseng said. But before any new investor emerges to take up Citigroup's remaining 772 million shares in Fubon, its prices would continue to drop, he added.
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