PrintAdd to my bookmarksChinese page
Citibank Securities (Taiwan) Ltd.

 
2004/12/22



Analyst Andy Chang, CFA
Susan Chu

RATIONALE
The 'twAA' long-term counterparty credit rating and 'twA-1' short-term credit rating on Citibank Securities (Taiwan) Ltd. (CSTL) reflect the company's status as a strategically important entity of Citigroup, which provides various forms of financial and non-financial support to CSTL. The company is adequately funded following a capital injection by Citigroup in 2003 and its earnings performance showed some improvement in the first half of 2004 following a year of weak earnings. Its market share, however, is falling.

CSTL is mainly engaged in securities underwriting and proprietary trading. The company's share of the domestic underwriting market, in terms of volume, is falling amid severe local and foreign competition. In this respect, the securities arms of a number of domestic financial holding companies have become particularly aggressive. The volume of CSTL's proprietary trading in debt securities has declined significantly as a result of Citigroup's conservative trading strategy and an unfavorable trading environment. This was especially the case in the second half of 2003.

CSTL's profitability declined in 2003, when its adjusted revenue fell by 32.7% as a result of decreasing income from underwriting and proprietary trading. Moreover, the concentration of the company's income sources contributed to the volatility of its performance in the course of the year. CSTL started a foreign bond brokerage business late in 2003, but as a relatively new and niche business line, this has had only a limited impact on the company's profitability. In addition, delays in the planned launch of a warrant business, suggest the contribution by new business to the company's revenue is likely to remain limited in the immediate future.

The quality of CSTL's assets is good, as a result of above-average risk monitoring. The company had no outstanding positions at the end of 2003 as a result of a strict policy on position taking and a short sell-down period. The investment book of the company's proprietary trading business is dominated by highly liquid government bonds. CSTL employs Citigroup's risk monitoring system to assess its outstanding exposures on a mark-to-market basis.

CSTL's capitalization is sound. Its shareholders' equity was strengthened in 2003 by a capital injection of NT$2 billion by Citigroup, to enable the company to meet the regulatory requirements to establish a warrant business. As a result of the capital injection, the company's leverage ratio (total assets divided by total shareholders' equity) improved to 1.86x at the end of 2003 from 4.45x at the end of 2002.

OUTLOOK: STABLE
The outlook is supported by the likelihood that CSTL's status as a strategically important entity of Citigroup will remain unchanged. The company is likely to continue to play an important role in Taiwan's securities market, as part of Citigroup's international expansion. CSTL's profit is likely to improve in 2004 as a result of the general recovery in Taiwan's capital market and the company's own business development efforts.

TRC Disclaimer:

Copyright © 2012 by Taiwan Ratings Corporation (TRC). All rights reserved.
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of TRC. The Content shall not be used for any unlawful or unauthorized purposes. TRC and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively TRC Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. TRC Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. TRC DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall TRC be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. TRC's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. TRC assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions.. TRC does not act as a fiduciary or an investment advisor except where registered as such. While TRC has obtained information from sources it believes to be reliable, TRC does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, TRC reserves the right to assign, withdraw or suspend such acknowledgement at any time and in its sole discretion. TRC disclaims any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

TRC keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of TRC may have information that is not available to other TRC business units. TRC has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

TRC may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. TRC reserves the right to disseminate its opinions and analyses. TRC's public ratings and analyses are made available on its Web sites, www.taiwanratings.com (free of charge), and rrs.taiwanratings.com.tw (subscription), and may be distributed through other means, including via TRC publications and third-party redistributors.