Cathay Fin has record qtly loss; China offers hope

TAIPEI (Reuters) - Cathay Financial (2882.TW), Taiwan's top financial holding firm, on Thursday posted a record quarterly loss, hurt by U.S. credit woes and a stronger Taiwan dollar, but there are hopes that better ties with China should boost future earnings.

In the shorter term, Cathay Financial could also book profits from its investments in Taiwan stocks .TWII, which have been the top performers in major Asian markets so far this year.

"Cathay and other Taiwan financial companies are going through positive structural changes, thanks to closer cross-strait ties," said Sheng Yen, who manages T$5 billion for Franklin Templeton First Taiwan Securities Investment Trust.

"There's a lot of hope about a rosy picture in the longer term. But we will see a bumpy ride in their stock prices from time to time before the subprime crisis settles down," said Sheng, adding he planned to buy Cathay shares at dips.

Cathay posted a January-March loss of T$6.04 billion ($199 million), compared with a T$10 billion profit a year earlier. The company lost T$2.18 billion in the fourth quarter of last year.

The result came in below analysts' estimates after foreign currency hedging costs jumped to T$27.4 billion from T$4.5 billion a year ago, said Cathay's Chief Strategic Officer C.K. Lee. Three analysts surveyed by Reuters had predicted a first-quarter loss of between T$3 billion and T$4.5 billion.

TRIMMING HEDGING COSTS

"We hope to do better in Q2 than Q1. We have been thinking about how to bring down our hedging cost," Lee said.

Cathay and smaller local rivals Fubon Financial (2881.TW), Mega Financial (2886.TW) and Shin Kong Financial (2888.TW) have been driven into losses recently as they have had to make higher provisions for investments in securities hit by the U.S. subprime mortgage crisis and ensuing global credit squeeze.

Cathay said last month it had written off T$1.76 billion in collateralised debt obligations (CDOs) so far for this year, following T$3.27 billion in previous write-downs.

But an executive said the company expected no more big subprime surprises, and that most related industry write-offs had now been made.

Analysts expect Cathay to return to profit in the near term.

The prospect of improving trade ties between Taiwan and China after the China-friendly Nationalist Party takes the helm of government in May will also help Taiwan's financial firms. There has been a recent change in Taiwan government policy allowing financial firms to invest in Chinese banks. [nTP236356])

Taiwan's banking and insurance index .TFNI is up by more than a fifth this year, largely on anticipation of China growth.

Ahead of the results, Cathay shares closed up 1.4 percent, while the broader TAIEX market .TWII gained 1.9 percent. Cathay rose 15 percent in January-March, outperforming a less than 1 percent gain on the broader exchange.

(US$1=T$30.3)

(Editing by Ian Geoghegan)