Chinatrust Financial Holding Co (
"There is a great likelihood of lower earnings this year ... as credit and cash card bad loans could offset the growth in other businesses like wealth management," Chinatrust Financial Chief Financial Officer Perry Chang (
The company does not know whether the impact on the company brought by consumers' bad debts will last for one or two more quarters until the financial results of the first quarter comes out, Chang said.
Chinatrust Financial had after-tax earnings of NT$16.12 billion (US$499.07 million), or NT$2.2 per share, last year, up about 5 percent from NT$15.39 billion, or NT$2.6 per share, in 2004.
In a bid to address the problem of spiraling consumer bad debt, the flagship unit Chinatrust Commercial Bank (
"We are not surprised about the company's declining profits this year," said Shirley Yang (
Chinatrust Commercial may need to budget an additional NT$8 billion to NT$10 billion in this year's provision expenses compared with last year in order to fully cover the potential bad loans, she said.
This could in turn dent parent Chinatrust Financial's net profit by nearly 30 percent to some NT$12 billion this year, the analyst predicted.
Chinatrust Financial, the nation's sixth-largest financial group by assets, announced last week that it would within a year acquire a 10-percent stake in bigger rival Mega Financial Holding Co (兆豐金控), the second-largest financial services provider in Taiwan, for NT$27.5 billion, in line with the government's pledge to consolidate the finance sector by halving the number of financial holding companies to seven by the year-end.
Chang yesterday declined to elaborate on the progress of that share-buying plan, or its possible seats on Mega Financial's board, citing the need to prevent a possible influence on the firms' stock prices as the deal is being hammered out.
Chinatrust Financial reportedly bought a nearly 3 percent stake in Mega Financial in two trading days after the announcement.
In response, state-controlled Mega Financial President Lin Tzong-yeong (
Common practice against acquisition attempts include purchasing the rival's shares, or asking a friendly third party to compete with the rival in order to increase the difficulty and costs of a hostile takeover, Lin said. He did not elaborate on Mega Financial's possible countermeasures.
Mega Financial created earnings of NT$22.51 billion, or NT$2.09 per share, last year, up from NT$21.9 billion, or NT$2.22 per share in 2004.
Morgan Stanley announced on Monday that it would upgrade Mega Financial to "overweight" from "equal-weight" on robust fundamentals and low exposure to consumer lending.
It set a target price of NT$26.3, representing a 22 percent upside in share price.
The US brokerage meanwhile retained its "equal-weight" rating on Chinatrust Financial and cut its earnings per share estimate by 24 percent to NT$16.7 this year, citing the impact of unwinding consumer bad debts and the uncertainty of its acquisition plan.
Mega Financial closed down 1.44 percent at NT$24 while Chinatrust Financial advanced 0.56 percent at NT$26.75 on the Taiwan Stock Exchange yesterday.
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