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Fitch Takes Rating Actions on Taiwan's Standalone Securities Firms
May 16, 2017 / 5:13 AM / 6 months ago

Fitch Takes Rating Actions on Taiwan's Standalone Securities Firms

(The following statement was released by the rating agency) TAIPEI, May 16 (Fitch) Fitch Ratings has taken the following rating actions on seven standalone securities firms in Taiwan: - Downgraded Oriental Securities Corporation's (Oriental) Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'BB+' from 'BBB-'; - Revised the Outlook on Concord Securities Corporation (Concord) to Stable from Negative; - Maintained the Rating Watch Positive (RWP) on Ta Chong Securities Co., Ltd.'s (Ta Chong) ratings; and - Affirmed all ratings on Ta Ching Securities Co., Ltd. (Ta Ching), Tachan Securities Co., Ltd (Tachan), Grand Fortune Securities Co., Ltd. (GFS) and Horizon Securities Co., Ltd. (Horizon). A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS AND NATIONAL RATINGS Oriental's downgrade reflects its weakened core competence in proprietary trading, which is evident from the company's losses in the past two years. Fitch does not expect the company to significantly improve its risk-adjusted return against unexpected market volatility. Oriental's limited franchise, which reflects in its less-competitive product offerings, and modest brokerage income that only covers 40%-50% of firm-wide operating expenses, are commensurate with an IDR of 'BB+'. The Outlook on Concord has been revised to Stable from Negative as the company has managed to rein in its appetite for trading, reduce its leverage and strengthen its capitalisation. Fitch maintained the RWP on Ta Chong's ratings as the acquisition of Ta Chong by Taishin Securities Co., Ltd. (TSS; BBB/A+(twn)/Stable) has yet to be completed. Fitch expects to resolve the Rating Watch in 2H17 when the transaction closes. The affirmations of the ratings on Ta Ching, Tachan, GFS and Horizon are based on their generally stable credit profiles, which are underpinned by their consistently low leverage and Fitch's expectation of their ability to maintain sound capital buffers, liquid portfolios and high-quality collateral backing repo funding. Fitch expects the decline in stock-market turnover to stabilise, helped by a mildly improving domestic economy and a recovery in retail flow. This combined with gradual deregulation in securities firms' products drive Fitch's revision of the securities firms' Operating Environment factor to 'a-/Stable' from 'a-/Negative'. Nevertheless, the ratings of the aforementioned entities are primarily driven by rating factors specific to their profiles, including their modest franchises, concentrated business models and homogeneity of product offerings. The seven entities are the smaller securities firms in Taiwan. Fitch expects their earnings performance to remain weak given their modest brokerage-related earnings, reliance on trading for profitability and limited competitive advantages in products and franchise. However, strong capital buffers, low leverage and liquid balance sheets will continue to underpin their ratings in the 'BB' category. Oriental and Concord are rated higher at 'BB+'. Oriental's franchise benefits from being part of the well-established Far Eastern group as well as its limited use of debt borrowing. Concord's rating reflects its relatively diversified franchise among similarly sized domestic peers, enabling the company to capture greater business opportunities. Horizon is rated lower at 'BB-', taking into account its weaker and more volatile earnings, and higher market risk appetite. RATING SENSITIVITIES IDRS AND NATIONAL RATINGS Rating upgrades for Oriental, Concord, Ta Ching, Tachan, GFS and Horizon are unlikely, given their moderate franchises and constrained business models that rely on trading for profitability. A downgrade for Concord would mainly arise from its inability to meet our expectation of a sustained improvement in earnings quality through its broader business mix than similarly rated domestic peers. For GFS, a sharp increase in risk appetite without commensurate increase in capital buffer could result in negative rating action. For Horizon, a severe deterioration in capitalisation from an increase in trading or aggressive share buybacks may lead to a downgrade. Downgrades at Oriental, Ta Ching and Tachan are less likely due to their healthy balance sheets with low use of leverage and superior liquidity. Fitch expects to upgrade Ta Chong's National Long-Term Rating to 'A+(twn)' to align it with TSS's rating once TSS's acquisition of the securities firm is completed. The agency will simultaneously withdraw Ta Chong's ratings. If the transaction does not occur, Fitch is likely to affirm the existing ratings on Ta Chong, given its ability to maintain a stable credit profile. The rating actions are as follows: Oriental: Long-Term Foreign-Currency IDR downgraded to 'BB+' from 'BBB-'; Outlook Stable Short-Term Foreign-Currency IDR downgraded to 'B' from 'F3' National Long-Term Rating downgraded to 'A-(twn)' from 'A(twn)'; Outlook Stable National Short-Term Rating downgraded to 'F2(twn)' from 'F1(twn)' Concord: Long-Term Foreign-Currency IDR affirmed at 'BB+'; Outlook revised to Stable from Negative Short-Term Foreign-Currency IDR affirmed at 'B' National Long-Term Rating affirmed at 'A-(twn)'; Outlook revised to Stable from Negative National Short-Term Rating affirmed at 'F2(twn)' Ta Chong: National Long-Term Rating at 'BBB+(twn)'; Rating Watch Positive maintained National Short-Term Rating at 'F2(twn)'; Rating Watch Positive maintained Ta Ching: National Long-Term Rating affirmed at 'BBB+(twn)'; Outlook Stable National Short-Term Rating affirmed at 'F2(twn)' Tachan: Long-Term Foreign-Currency IDR affirmed at 'BB'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'B' National Long-Term Rating affirmed at 'BBB+(twn)'; Outlook Stable National Short-Term Rating affirmed at 'F2(twn)' GFS: National Long-Term Rating affirmed at 'BBB+(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)' Contact: Primary Analysts Sophia Chen, CFA, CPA (Concord, Ta Chong, Tachan and Horizon) Director +886 2 8175 7604 Fitch Australia Pty Ltd, Taiwan Branch Suite 1306, 13F, 205, Tun Hwa N. Road Taipei Shirley Hsu (Oriental, Ta Ching and GFS) Associate Director +886 2 8175 7606 Secondary Analysts Cherry Huang, CFA (Oriental, Concord, Tachan and Horizon) Director +886 2 8175 7603 Sophia Chen, CFA, CPA (Ta Ching and GFS) Director +886 2 8175 7604 Shirley Hsu (Ta Chong) Associate Director +886 2 8175 7606 Committee Chairperson Parson Singha, CFA Senior Director +662 108 0151 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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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