Related Market Sector:
Fitch Ratings-Taipei/Sydney-18 January 2012: Fitch Ratings has affirmed Taiwan's Concord Securities Corporation's (CSC) Long-Term Foreign Currency Issuer Default Rating (IDR) at 'BB+' and its National Long Term Rating at 'A-(twn)'. The Outlook is Stable. A full list of rating actions is detailed below.
At the same time, Fitch has affirmed CSC's Individual Rating at 'C/D', Support Rating at '5' and Support Rating Floor at 'No Floor', and withdrawn them as these ratings are no longer considered by Fitch to be relevant to the agency's ratings coverage.
The ratings primarily reflect CSC's adequate capital and liquidity against its risk profile. They also consider the company's strong management quality and corporate governance. However, these positive factors are counterbalanced by its volatile earnings performance due to its still- modest brokerage franchise.
The Stable Outlook reflects Fitch's expectation that CSC will uphold reasonable levels of liquidity and capitalisation for its risk profile, while returning to profitability in 2012. In particular, for the ratings to remain at current levels, CSC would need to demonstrate that its operating model can produce sustainable profits, sufficient to sustain its balance sheet strength and credit profile. However, any sharp increase in risk appetite or unexpected trading losses in 2012 (following losses in two of the past four years) that leads to further deterioration in the capital ratios and/or liquidity could trigger a negative rating action.Upgrade potential is limited by its still modest franchise, limited diversification in revenue and profit, and consequently volatile and weak profitability.
CSC reported an annualized return on equity of -4.6% at end-Q311 (2010: 1.5%), due to trading losses. Fitch expects CSC's performance to remain subdued in 2012 due to likely contraction in market turnover and shrinking margin lending amid heightened economic uncertainty. However, sizable losses from proprietary trading are less likely due to CSC's substantially reduced equity investments and modest interest rate risk of its bond holdings.
CSC's current liquidity ratio remained stable at around 130% throughout 2011. Capitalisation is adequate but inferior to peers. The capital adequacy ratio (CAR) declined to 293% at end-Q311 from 342% at end-2010 as trading losses eroded capital and increased bond investments led to higher market risk. However, Fitch expects its conservative strategy, including a much reduced trading appetite and disciplined stop-loss mechanism, would limit further downward pressure on its current capital levels.
CSC is ranked 15th by equity among 47 fully licensed securities companies in Taiwan. The Cheng family is the major shareholder, controlling a 28% stake and nine out of 20 board seats.
For a more detailed credit profile, see Fitch's credit report of OSC, which will be available shortly at www.fitchratings.com.
CSC's full rating list:
Long-Term Foreign Currency IDR affirmed at 'BB+'; Outlook Stable
Short-Term Foreign Currency IDR affirmed at 'B'
National Long-Term rating affirmed at 'A-(twn)'; Outlook Stable
National Short-term rating affirmed at 'F2(twn)'
CSC's Individual Rating affirmed at 'C/D'; withdrawn
Support Rating affirmed at '5'; withdrawn
Support Rating Floor affirmed at 'No Floor'; withdrawn
Contacts:
Primary Analyst
Cassie Chen
Associate Director
+886 2 8175 7602
Fitch Ratings Limited
Suite 1306, 13F, Tun Hwa N. Rd. Taipei
Secondary Analyst
Cherry Huang, CFA
Director
+886 2 8175 7603
Committee Chairperson
John Miles
Senior Director
+61 2 8256 0344
Media Relations: 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. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings
Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 16 August 2011, 'Securities Firms Criteria', dated 16 August 2011, and 'National Ratings Criteria', dated 19 January 2011, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Securities Firms Criteria
National Ratings Criteria
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