Financial Industry and opportunities facing Investors

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Financial Industry and opportunities facing Investors. . 2005/10/27. Agenda. Global financials cycle gets tougher Financials in Asia year of the thoroughbreds Taiwan banking sector. Source: TEJ, CSFB. Global Financials. Cycle gets tougher. - PowerPoint PPT Presentation

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  • Financial Industry and opportunities facing Investors 2005/10/27

  • AgendaGlobal financials cycle gets tougherFinancials in Asia year of the thoroughbredsTaiwan banking sector

    Source: TEJ, CSFB

  • Global FinancialsCycle gets tougher

  • Global Financials Continuing ChallengesIndustry rating has declinedKey Industry ChallengesWeaker revenue growthSpecialisation vs. diversificationEfficiencyConsolidationCapital efficiencyMarkets and riskRisk Management, Basle 2

  • Global (G7) Banks de-rating and focused on cashG7 Banks Forward Price-earningsG7 Banks Dividend YieldG7 Banks PE Relative to market PEG7 Banks dividend yield vs. market dividend yieldSource: Thomson Financial Datastream, MSCI, CSFB Analysis

  • Asia Banks are little differentAsia Banks Forward Price-earningsAsia Banks Dividend YieldAsia Banks PE Relative to market PEAsia Banks dividend yield vs. market dividend yieldSource: Thomson Financial Datastream, MSCI, CSFB Analysis

  • Asia banks no expectations of out-performanceMSCI Asia Banks PE Relative to G7 BanksSource: Thomson Financial, MSCI, Company Data, CSFB Analysis

  • Despite sharply improved returnsAsia banks are benefiting from:Credit recoveriesRevived loan growthStable market structureBalance competitive pressuresDiversifying revenuesConsumer oriented growthROE Projections 2004-2006 Asia BanksSource: Company Data, CSFB Analysis

  • Trends Driving Asias Growth

  • Taiwans FHC and BankingStick with consolidators

  • Number of Financial Institutions in Taiwan

    Sheet1

    2005.062004.06

    HeadBranchHeadBranch

    FHCs1414

    Domestic Banks473,217503,175

    Local Branches of Foreign Banks35683668

    Credit Cooperatives3030534337

    Credit Departments of Farmer's Associations253826253826

    Credit Departments of Fishermen's Associations25392539

    Trust and Investment Companies326326

    Postal Savings System11,32011,322

    Securities Finance Companies4444

    Property Insurance Companies2417424174

    Life Insurance Companies2913429135

    Bills Finance Companies14441445

    Sheet2

    Sheet3

  • Taiwan FHC from 2001/07/0914 FHCsReorganizationM&A happened continuouslyDivestitures ?What nextWill Government Policy success?

  • Taiwan banking consolidation inevitable Hirschman Herfindahl Index Asia BanksSource: Central Bank Data, CSFB AnalysisHHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm).

  • Why stick with acquirers?Economics favor buyer (supply exceeds demand)Current valuationBV(P/B)Adjusted BV(P/ABV)Branch ValueP/E

    RankingReuter's codeBank/FHC nameMarket share1Not listedBank of Taiwan9.2%25854.TWTaiwan Cooperative Bank7.5%32886.TWMega FHC (ICBC + Chiao Tung Bank)7.0%4Not listedLand Bank of Taiwan6.4%52892.TWFirst FHC5.6%62880.TWHua Nan FHC5.5%72801.TWChang Hwa Bank4.9%82891.TWChinatrust FHC4.5%92881.TWFubon FHC4.3%102834.TWTaiwan Medium Business Bank3.9%112882.TWCathay FHC3.5%122887.TWTaishin FHC 2.4%132822.TWFarmers Bank 2.0%142890.TWSinopac Holdings1.7%152808.TWInternational Bank of Taipei1.5%16Not listedShanghai Commercial Bank1.5%172807.TWInternational Bank of Taipei1.4%182884.TWE Sun FHC1.3%192847.TWTa Chong Bank1.2%20Not listedCentral Trust of China1.0%Top 20 banks in Taiwan

  • Overview of Taiwan banking sectorSource: Banking Bureau of FSC, CSFB

  • Earnings cycle recovered Loan growth rebounded post tech bubble and credit crunchConsumer loan growth remains healthyCredit Card and Cash Card?

    Loan growthSource: FSC, CSFB

  • Consumer loans remain growth driver Non-mortgage consumer loans grew quickly to 13% of total loans (6% at end of 1999)Consumer loans to GDP is rising quicklyRecovery in property prices support robust mortgage growthBanks are under-taking more risks Fast growth in cash card loansLoan breakdown (as of March 05)Source: FSC, DGBAS, CSFBNon-mortgage loans: 13%Loan breakdown (as of Dec 1999)Non-mortgage loans: 6%

  • Property prices have peaked and stabilizedProperty prices peaked in 4Q05 and were broadly flat in 1Q05Transaction growth tapered off to 2% YoY in 1Q05 following +23% in 2002; 9% in 2003 (SARS) and 20% in 2004CSFB expects property prices to stabilize in 2005Residential property price indexSource: Sinyi Realty; Department of Interior, TaiwanTransaction volume of residential housingTaiwan property price index

    Property price outlook survey

    Property prices trend in the coming 3 months for people with properties

    2Q023Q024Q021Q032Q033Q034Q03

    Fall significantly0.0%0.0%0.0%0.0%1.6%0.7%0.1%

    Fall marginally14.4%24.7%24.9%17.6%28.1%13.6%6.3%

    Stable58.2%57.5%59.7%59.2%60.7%53.4%51.5%

    Rise marginally26.9%16.8%15.2%22.2%9.5%31.4%41.5%

    Rise significantly0.1%0.2%0.1%1.0%0.1%0.9%0.6%

    Decline to comment0.4%0.8%0.1%0.0%0.0%0.0%0.0%

    100.0%100.0%100.0%100.0%100.0%100.0%100.0%

    14.4%24.7%24.9%17.6%29.7%14.3%6.4%

    27.0%17.0%15.3%23.2%9.6%32.3%42.1%

    Property prices trend in the coming 1 year for people with properties

    2Q023Q024Q021Q032Q033Q034Q03

    Fall significantly0.0%0.0%0.0%0.0%1.3%0.3%0.0%

    Fall marginally12.5%22.0%23.9%15.2%26.4%15.3%9.5%

    Stable45.8%51.4%53.4%49.2%51.4%43.1%40.8%

    Rise marginally41.1%25.5%22.5%34.7%20.5%39.3%45.8%

    Rise significantly0.3%0.3%0.3%1.0%0.4%1.9%3.8%

    Decline to comment0.3%0.8%-0.1%-0.1%0.0%0.1%100.1%

    100.0%100.0%100.0%100.0%100.0%100.0%200.0%

    12.5%22.0%23.9%15.2%27.7%15.6%9.5%

    41.4%25.8%22.8%35.7%20.9%41.2%49.6%

    2Q023Q024Q021Q032Q033Q034Q03

    Average house hunting period (months)n.a.n.a.4.54.54.84.94.4

    Average number of house visitedn.a.n.a.6.87.386.7

    Average price bargaining range (%)n.a.n.a.9.711.711.38.78.3

    Property price outlook survey

    00

    00

    00

    00

    00

    00

    SARS outbreak

    3 months outlook

    1 year outlook

    Household disposable income

    000

    000

    000

    000

    000

    Average house hunting period (months)

    Average number of house visited

    Average price bargaining range (%)

    Supply

    936

    .

    National Disposable Income,

    National Consumption and National SavingsUnitMillion NT$

    National Disposable IncomeNational ConsumptionNet National Savings

    YearTotalHouseholdsGeneral GovernmentEnterprisesSubtotalHouseholdsGeneral GovernmentSubtotalHouseholdsGeneral GovernmentEnterprisesHousehold savings rateHousehold disposable income# of householdHousehold disposal income

    12,3499,4512,58930911,1288,9282,2001,22152338930919516%

    17,38813,0663,78753515,66112,7282,9331,72733885453519523%

    23,07817,8834,60658920,91717,3533,5642,1615301,04258919533%

    25,26519,1985,67439323,27018,6644,6061,9955341,06839319543%

    29,99522,4387,02753027,27821,6235,6552,7178151,37253019554%

    33,80225,2407,89566731,24524,2357,0102,5571,00588566719564%

    38,81528,9608,92393235,87427,7738,1012,9411,18782293219574%

    44,29932,61710,83784540,37431,0359,3393,9251,5821,49884519585%

    50,90437,38012,3681,15646,38235,63810,7444,5221,7421,6241,15619595%< 2m11%

    61,31745,55414,1871,57654,59142,55912,0326,7262,9952,1551,57619607%2 - 3m18%

    69,15151,56615,5742,01161,02547,54113,4848,1264,0252,0902,01119618%2002493196125,751TW: Five Leading Banks: New Loans Rate: House Purchasing Loans: ANNUALTW: Prime Lending Rate: First Commercial Bank: ANNUAL3 - 4m20%

    74,00056,61216,2881,10067,54352,10315,4406,4574,5098481,10019628%2060500196227,475s2s34 - 5m15%

    83,07763,13617,2472,69472,30155,91216,38910,7767,2248582,694196311%2118281196329,805% pa% pa5 - 6m11%

    95,87874,29518,9982,58582,10264,31517,78713,7769,9801,2112,585196413%2187612196433,962A: 1994: 2002A: 1986: 20026 - 9m17%

    106,15980,67221,4094,07890,45471,45219,00215,7059,2202,4074,078196511%2257031196535,74319949.45219866.759 - 12m4%

    118,47390,64424,4103,41998,93777,06621,87119,53613,5782,5393,419196615%2331131196638,88419958.94119876.75> 12m3%

    136,562102,79228,4035,367112,92087,40725,51323,64215,3852,8905,367196715%2388152196743,04219968.62219887

    158,440116,62536,0665,749132,112101,78930,32326,32814,8365,7435,749196813%2478481196847,05519978.419198910.375

    182,954127,97944,68410,291150,050113,86136,18932,90414,1188,49510,291196911%2539867196950,38819988.2899199010

    210,542152,64648,3629,534169,033127,63641,39741,50925,0106,9659,534197016%2632866197057,97719997.376919918.62

    244,345176,97355,00312,369188,009142,53145,47856,33634,4429,52512,369197119%1772715540197165,17020006.521919928.3

    292,603207,84169,39315,369215,347164,58050,76777,25643,26118,62615,369197221%2082794149197274,38420015.092919938

    378,962272,76185,30720,894269,268206,91962,349109,69465,84222,95820,894197324%2732878453197394,76020023.68619948

    509,573373,831119,64316,099376,835299,34677,489132,73874,48542,15416,099197420%37429712481974125,81619957.81Q032Q033Q034Q03

    541,299401,602130,2599,438429,910336,84693,064111,38964,75637,1959,438197516%40230789061975130,43719967.525First time homebuyers62%54%59%54%

    646,730451,205160,64334,882476,217368,690107,527170,51382,51553,11634,882197618%45131947921976141,23119977.65Trading up/down31%35%25%31%

    755,411536,084186,47832,849555,629426,802128,827199,782109,28257,65132,849197720%53633191581977161,51219987.893Investors8%11%16%15%

    903,692630,578228,10445,010647,975497,649150,326255,717132,92977,77845,010197821%63134491161978182,82319997.841%

    1,087,170758,915287,59540,660788,940604,473184,467298,230154,442103,12840,660197920%75936044431979210,55020007.94

    1,365,151938,648343,83682,6671,004,902767,742237,160360,249170,906106,67682,667198018%93937550861980249,96720017.6

    1,61