Lehman Brothers' Bankruptcy Seen to Affect Taiwanese Financial Sector Heavily

Taipei, Sept. 16, 2008 (CENS)--The filing for bankruptcy protection by U.S. leading investment bank Lehman Brothers is expected to deal a major blow to the Taiwanese financial industry, whose risk exposure to the company's financial products tops NT$80 billion, even greater than its NT$25 billion risk exposure to the U.S. subprime mortgage crisis.

At an emergent press conference last night, Lee Jih-chu, vice chairperson of the Financial Supervisory Commission (FSC), reported that domestic financial institutions, including banks, securities firms, fund managers, and insurance firms, hold Lehman Brokers' products totaling NT$40 billion in value, while their wealth-management clients also possess some NT$40 billion worth of structured notes connected with debt claims for Lehman Brothers.

Officials of the Central Bank of China (CBC), however, reported that the CBC doesn't hold any corporate bonds issued by Lehman Brothers, adding that the CBC only invests in prime government bonds or semi-government bonds.

Industry insiders pointed out that both institutional and individual creditors will be able to recover only very limited amount from their debt claims to Lehman Brothers. As a result, many financial institutions will have to reduce their assets on books for their own investment loss and deal with disputes with their wealth-management clients, who bought Lehman Brothers-related structured notes on guaranteed principal and interest protection.

Local insurance firms and banks are major victims of the financial turmoil, holding over NT$20 billion and NT$10 billion of risk exposures, respectively.

Shin Kong Financial Holding, for instance, had NT$2.5 billion of exposure, the highest among local financial institutions, mainly in the form of corporate bonds, derivatives, and stocks issued by Lehman Brothers. Mega Financial Holding ranks second place, with NT$2 billion of risk exposure, followed by Cathay Financial Holding with NT$1.05 billion and Fubon Financial Holding with NT$864 million.

Meanwhile, Chinatrust Bank is the largest agent for Lehman Brothers, having sold NT$16 billion worth of the latter's structured notes to its wealth-management clients. Taishin Bank also sold some NT$5-6 billion of the company's structure notes in the first three months this year.