Fitch Affirms 8 Taiwanese Securities Companies

Sun May 25, 2014 11:57pm EDT

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(The following statement was released by the rating agency) TAIPEI/SYDNEY/HONG KONG, May 25 (Fitch) Fitch Ratings has affirmed the ratings on eight Taiwanese securities companies, namely Yuanta Securities Co., Ltd. (Yuanta), Jih Sun Securities Corp., Ltd (Jih Sun), Oriental Securities Corporation (Oriental), Concord Securities Corporation (Concord), Ta Chong Securities Co., Ltd. (Ta Chong), Ta Ching Securities Co., Ltd. (Ta Ching), Tachan Securities Co., Ltd (Tachan), and Horizon Securities Co., Ltd. (Horizon). At the same time, Fitch has affirmed the related support-driven IDRs and National Ratings of Yuanta Financial Holding Co., Ltd. (YFHC), Yuanta Commercial Bank Co., Ltd. (YCB), Jih Sun Financial Holding Co., Ltd (JSFH) and Jih Sun International Bank (JSIB). JSIB's and YCB's Viability Ratings (VRs) have also been affirmed. Fitch has withdrawn the Support Rating for YCB as it is no longer considered by Fitch to be relevant to the agency's coverage. The Outlooks are all Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRs and NATIONAL RATINGS The affirmation of the eight securities firms' ratings reflects their steady credit profiles, which are underpinned by their simple business model, moderate risk appetite and Fitch's expectation of their ability to maintain strong capital buffers and flexibility in liquidity. These eight companies all reported improvement in profitability in 2013, helped by slightly higher stock market turnover and favourable stock-price movements. The affirmation of the IDRs and National Ratings on YFHC, YCB, JSFH and JSIB, which are part of financial holding companies, corresponds with the rating actions on their groups' principal operating subsidiaries, Yuanta and Jih Sun. Franchise, earnings quality, risk profile and capitalisation are the key factors accounting for rating differences among eight securities firms. Yuanta is rated at 'BBB+', the highest among domestic peers, reflecting its dominant market position in Taiwan's securities market, resilient flow-based earnings through the cycle and strong financial flexibility. Jih Sun is rated at 'BBB-' as a result of its linkage with its weaker bank affiliate JSIB as well as its own well-established brokerage market position, generally consistent profitability and sound balance sheet strength. Meanwhile, Oriental, rated at 'BBB-', demonstrates satisfactory capital strength despite its trading-focused business model and comparatively weaker risk-adjusted return among local peers. The smaller firms - Concord, Ta Chong, Ta Ching, Tachan and Horizon - have relatively weak and volatile earnings due to their limited brokerage franchises and reliance on proprietary trading for profits. This together with their higher concentration risks in stock and bond investments and repo funding constrains them to non-investment grade ratings on the international rating scale. Among smaller-sized companies, Concord is rated higher at 'BB+/A-(twn)', reflecting its relatively diversified franchise among 'BB' rated local peers and Fitch's expectation of improving profitability, although it has below-average capital and liquidity positions due to reliance on short-term repos to fund its larger bond investments. Meanwhile, Horizon is rated lower at 'BBB(twn)', taking into account its relatively weak and volatile earnings, higher market risk appetite and significantly improved financial flexibility after large property sales in 2012. YFHC is rated at the same level as Yuanta, reflecting the high level of integration between YFHC and Yuanta and the modest leverage at YFHC. JSFH's IDRs and National Ratings are one notch below Jih Sun's to reflect the group's potential obligation to support its weaker banking subsidiary JSIB, in case of need. The IDRs and National Ratings of YCB and JSIB are aligned with their respective parents' ratings, reflecting their status as core subsidiaries of their groups, the obligatory support from their holding parents under the Taiwan's Financial Holding Company Act and that their risk profiles are inseparable from that of their respective groups. RATING SENSITIVITIES - IDRs and NATIONAL RATINGS The rating upside for the affirmed entities is limited, unless the companies can demonstrate a sustained improvement in earnings quality, most likely through a larger and more diversified franchise and significant advancement in product breadth and depth. Conversely, sustained weak earnings and/or a sharp increase in risk appetite resulting in material deterioration in capitalisation may trigger a negative rating action. For Oriental, due to its trading-focused business model and comparatively weaker risk adjusted return among local peers, failure to maintain a consistent capitalisation could result in rating downgrade. For Concord, its ratings could face downward pressure if it further increases its short-term funding for long-dated assets and becomes more vulnerable to dislocation in the market and liquidity risks. Any rating action on Yuanta and Jih Sun could trigger a similar rating action on their group companies' ratings. KEY RATING DRIVERS AND RATING SENSITIVITIES - VRs YCB's VR reflects adequate capitalisation relative to its risk profile and healthy liquidity, counterbalanced by its rising asset quality risk, higher risk appetite from its planned scale expansion and modest earnings. Improving profitability through stronger fee income, enhanced earnings quality and contained credit costs, which generate sustained and robust internal capital, could lead to an upgrade. Conversely, excessive growth and/or asset quality deterioration that lead to weakened capitalisation will weigh on its VR. The affirmation of JSIB's VR reflects its still-weak, but improving, core operating profitability and capitalisation that is better than its peers'. An upgrade to JSIB's VR is likely if it can maintain its core profitability and its asset quality shows improvement. The bank has a relatively concentrated loan book, and any unexpected deterioration of large credits leading to impairment of capital could result in a negative rating action on its VR. KEY RATING DRIVERS AND RATING SENSITIVITIES - DEBT RATINGS YFHC's senior unsecured bonds are rated at the same level as its National Long-Term Rating as they constitute direct, unconditional, and unsecured obligations of the company. JSIB's subordinated bond is rated one notch below the issuer's National Long-Term Rating to reflect its subordinated status and the absence of going-concern loss-absorption features. The above notching practices are in accordance with Fitch's criteria on rating bank regulatory capital and similar securities. Any rating action on YFHC and JSIB could trigger a similar move on their debt ratings. The rating actions are as follows: Yuanta: Long-Term IDR: affirmed at 'BBB+'; Stable Outlook Short-Term IDR: affirmed at 'F2' National Long-Term Rating: affirmed at 'AA-(twn)'; Stable Outlook National Short-Term Rating: affirmed at 'F1+(twn)' YCB: Long-Term IDR: affirmed at 'BBB+'; Stable Outlook Short-Term IDR: affirmed at 'F2' National Long-Term Rating: affirmed at 'AA-(twn)'; Stable Outlook National Short-Term Rating: affirmed at 'F1+(twn)' Viability Rating: affirmed at 'bb+' Support Rating: '2'; Withdrawn YFHC: Long-Term IDR: affirmed at 'BBB+'; Stable Outlook Short-Term IDR: affirmed at 'F2' National Long-Term Rating: affirmed at 'AA-(twn)'; Stable Outlook National Short-Term Rating: affirmed at 'F1+(twn)' Senior unsecured debt: affirmed at 'AA-(twn)' Jih Sun Long-Term IDR: affirmed at 'BBB-'; Outlook Stable Short-Term IDR: affirmed at'F3' National Long-Term Rating: affirmed at 'A(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F1(twn)' JSFH: Long-Term IDR: affirmed at 'BB+'; Outlook Stable Short-Term IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'A-(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F2(twn)' JSIB: Long-Term IDR: affirmed at 'BB+'; Outlook Stable Short-Term IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'A-(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F2(twn)' Viability Rating: affirmed at 'bb-' Subordinated debt rating: affirmed at 'BBB+(twn)' Oriental: Long-Term IDR: affirmed at 'BBB-'; Outlook Stable Short-Term IDR: affirmed at 'F3' National Long-Term Rating: affirmed at 'A(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F1(twn)' Concord: Long-Term IDR: affirmed at 'BB+'; Outlook Stable Short-Term IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'A-(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F2(twn)' Horizon: National Long-Term Rating: affirmed at 'BBB(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F3(twn)' Ta Chong: National Long-Term Rating: affirmed at 'BBB+(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F2(twn)' Ta Ching: National Long-Term Rating: affirmed at 'BBB+(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F2(twn)' Tachan: Long-Term IDR: affirmed at 'BB'; Outlook Stable Short-Term IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'BBB+(twn)'; Outlook Stable National Short-Term Rating: affirmed at 'F2(twn)' Contacts: Primary Analysts Sophia Chen, CFA, CPA (Concord and Ta Chong) Director +886 2 8175 7604 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Jack Chiu (Oriental and Ta Ching) Associate Director +886 2 8175 7606 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Jenifer Chou, CFA, FRM (Tachan, Yuanta, YFHC and YCB) Associate Director +886 2 8175 7605 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Clark Wu (Jih Sun, JSFH, JSIB and Horizon) Associate Director +886 2 8175 7602 Fitch Ratings Limited, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Rd., Taipei Secondary Analysts Cherry Huang, CFA (Yuanta, YCB, YFHC, Oriental, Concord, Horizon, Ta Chong, Ta Ching and Tachan) Director +886 2 8175 7603 Jenifer Chou, CFA, FRM (Jih Sun, JSFH and JSIB) Associate Director +886 2 8175 7605 Committee Chairperson Tim Roche Senior Director +61 2 8256 0310 Media Relations: Leni Vu, Sydney, Tel: +61 2 8256 0325, Email: Leni.Vu@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)'for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable. Additional information is available at www.fitchratings.com. Applicable criteria "Rating FI Subsidiaries and Holding Companies", dated 10 August 2012, "Global Financial Institutions Rating Criteria", dated 31 January 2014, "Assessing and Rating Bank Subordinated and Hybrid Securities", dated 31 January 2014, "Securities Firms Criteria", dated 31 January 2014 and "National Scale Ratings Criteria", dated 30 October 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Rating FI Subsidiaries and Holding Companies here Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Securities Firms Criteria here National Scale Ratings Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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