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SinoPac Financial Holdings (2890.TW)

PJ Asset Management urges the Board of Directors of SinoPac FHC (2890.TT) in exercising their duties to supervise the subsidiary

October 22 2019

PJ Asset Management urges the Board of Directors of SinoPac FHC (2890.TT) in exercising their duties to supervise the subsidiary

Requests the Board to prudently evaluate the potential impact of China risk exposure and to review the board's functionality

TAIPEI, Oct. 24, 2019 /PRNewswire/ -- PJ Asset Management (PJAM) recently issued a letter to the board of directors of SinoPac Financial Holdings Company Limited ("SinoPac FHC" or "Company") in October 2019. The letter, which is reproduced below, details concerns regarding the relatively high risk exposure in China of Bank SinoPac (the Company's subsidiary) and recent lawsuits against Morgan Stanley and its former president as both events may have an inadvertent impact to SinoPac FHC's profitability and shareholders' interests. PJAM urges the Company to prudently evaluate the potential impact of China risk exposure and to review the board's functionality in the decision-making process. The original letter in Chinese can be found on PJAM's official website http://www.pjam.com.tw/.

The Board of Directors
SinoPac Financial Holding Company

Dear Members of the Board,

PJAM and its affiliates currently own more than 7% of the outstanding shares of the Company.

The efficiency of board function

According to the Company's announcement on the Market Observation Post System (M.O.P.S.) on Sep 23 2019, Bank SinoPac filed a lawsuit against Morgan Stanley in the Far East National Bank ("FENB", Bank SinoPac's subsidiary in US) sale ("Transaction"). In the meantime, Bank SinoPac has also sued its former president Michael Chang who led the Transaction.

PJAM's concern on this issue was the possible negligence of the management team who participated and directors who made the decision then. As a fully owned overseas subsidiary, all of FENB's financial results should have been fully disclosed and reviewed by the Company and the subsidiary's board of directors at quarterly board meetings. PJAM feels surprised that Bank SinoPac's board members claimed of not knowing the huge variance of FENB's net worth when they approved the Transaction while all the subsidiaries' financial reports should have been periodically reviewed by the same members prior to that, but not until the public complaints were received by FSC they finally were aware of the concealment of the Transaction's huge undervaluation. If the board members were well diversified and served by the so-called financial and accounting experts according to the Company's published annual report, were they duly performing their duties in the Transaction's decision-making process?

The impact of China risk exposure

According to the statement made by Commissioner Gu (which was made in his report to Legislative Yuan), FSC plans to execute three preventive measures to limit the potential risk impact arisen from operating branches or subsidiaries in China to the parent financial institutions due to the heated U.S.-China trade war. The total exposure of China risk in Bank SinoPac was NT$ 82.4 billion as of Jun 2019 and above the average level of the peers. PJAM expects a specific explanation from the Company's board to understand if there's any impact to their businesses and financials caused by the FSC's new regulation and how they will effectively control the risk exposure in China.

Based on the key concerns above, PJAM sincerely hopes that the Company's board can address the issues concretely, especially the decision process of the Transaction. After all, a sound and complete corporate governance is the key to preserve the Company's long term value as well as to protect all shareholders' interests.

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