Cosmos Bank, Taiwan

Cosmos Bank, Taiwan 2008 Annual Report Contents Letter to Shareholders 2 Bank Overview 5 Introduction 6 Organizational Structure 8 Information on Directors 10 Fund Raising Status and Operational Highlights 14 Capital & Dividend 15 Financial Bonds 20 Preferred Shares 21 Issuance of Depository Receipt 22 Employee Stock Option Plan (ESOP) 22 Merging or Acquisition of Other Financial Institutions 22 Scope of Business 23 Profile of Employees 30 Corporate Responsibilities and Ethics 31 Labor/Management Relations 31 Major Contracts 33 Risk Management 33 Financial Report from Audit Committee in 2008 43 Financial Review 44 Independent Auditors' Report 45 Financial Statements 46 Note to Financial Statements 54 Contact Details of Head Offices & Branches 107 1 LETTER TO SHAREHOLDERS 2 LETTER TO SHAREHOLDERS The financial tsunami in 2008 created by the U.S. second mortgage crisis continues to impact the global economy. The severity and impact are growing and many countries are facing the problem of declining wealth, rising unemployment, lowering of domestic demand and export. The global economy was impacted severely in the second half of 2008 and Quarter 4 growth shrank to only 1.1%. This has also affected the Taiwanese economy which is export oriented. Due to the various negative developments, the local economy only managed a growth of 0.12% p.a., a 5.58% drop as compared to 2007. 2008 Quarter 4 growth has contracted to -8.36%. Since its successful recapitalization in the end of 2007, Cosmos Bank (the “Bank”) and majority shareholders SAC Private Capital Group (SAC P.C.G.) and GE Money have completed the first stage of the Bank's re-engineering in the middle of 2008. With a better overall financial structure, lower operating cost, full management team and strategy realignment, the Bank's external rating (issued by Taiwan Ratings on September 18, 2008) continues to be at twBBB/twA-3 with a “positive” long term credit rating outlook. In the past year, the Bank has focused in improving information system infrastructure and customer service, strengthening service quality and re-branding. The Bank has also successfully invited individuals with international and domestic banking experience to join the management team. With this, the Bank hopes to enhance its domestic and international capabilities. The Bank completed a capital reduction in July 2008 to set off issuance discount arising from the 2007 recapitalization creating a stronger, more efficient capital structure. With a combined shareholding of 81%, GE Money and SAC P.C.G are fully committed to the long term sustainability of Cosmos and Taiwan. To increase overall operational efficiency, the Bank has undertaken various process improvement initiatives in the past year to increase productivity for front and back offices, shorten work flow and improve timeliness. In underwriting procedures, the implementation of an on-line collateral valuation system and interfacing it with corporate credit management system resulted in greater efficiency. It also enabled better collateral analysis and control. In the area of collection, the Bank imple- mented a recovery evaluation model that facilitates collection effort by analyzing customer profile which improve collection effectiveness. To strengthen and enlarge the credit card market share, the Bank has launched the Money Back Signature Card. The Card and its varied affiliated benefits attracted favorable response and has enhanced the Bank's reputation in the market. The collapse of Lehman Brothers and the impact to the overall wealth management industry created an overall contraction of the market. With comprehensive products and training, our Relationship Managers were able to increase 2008 Quarter 4 fee income by 36% as compared to the same period last year. The Bank will continue to strengthen the professionalism and productivity of its Relationship Managers and actively harvest the wealth management market. 3 LETTER TO SHAREHOLDERS In financial operation and asset quality, the Bank has been actively managing its non-performing loans and wrote off large bad debt exposures. As a result, the Bank incurred a net operating loss of NT$10.2 billion. However, the Bank registered coverage ratio of 116.32% and a high capital adequacy ratio of 17.95% at end of 2008. With this as a strong foundation, the Bank will be able to enhance asset quality further. With better quality new credit origination, the NPL ratio at end of 2008 was 3.9%, a reduction of 33.9% as compared to the ratio of 5.9% at 2007 year end. Going forward, the Bank will take steps to further strengthen its capital structure to ensure long term sustainability. 2009 will be a challenging year. Whilst the global financial market trends continue to be mixed, the Bank will meet the challengers proactively, aiming to build a strong capital base and profitable platform. We are confident that the professionalism, passion and commitment of the management team will create further value for the shareholders while making the Bank a more efficient and diversified entity. The Bank revealed its new look in its branding exercise last year and will work hard to continue its goal of creating a local bank with world class capabilities. Jeffrey M. Hendren Chairman & President 4 BANK OVERVIEW 5 BANK OVERVIEW I. Introduction 1. Establishment Cosmos Bank (the “Bank”) was incorporated on August 13, 1991 and obtained the Certificate of Business Registration on January 14 the following year. The Bank officially commenced its operations on February 12, 1992. Since its establishment, the Bank has operated as a commercial bank, offering excellent financial services to both corporate and individual customers. On December 28, 2007, two global financial groups SAC and GE Money acquired 81.7% (fully diluted basis*) of the shares in Cosmos Bank following the completion of the recapitalization exercise. Under the leadership of our new management team, Cosmos Bank is well-poised to become a local bank with world class capabilities. 2. Organization The Bank is a commercial bank operating as a limited corporation and is not a member of a financial holding group. 3. Merger & Acquisition, Investment in Related Companies and Corporate Restructure (1) On June 30th 2008, the Bank reinvested NT$1,002 thousand in Cosmos Insurance Brokers Co., Ltd. (previously known as “GE Capital Insurance Brokers Co., Ltd.”; hereinafter referred as “Cosmos Insurance Brokers”). The paid-in capital of Cosmos Insurance Brokers was NT$17,300 thousand and the investment cost amounted to its net worth of NT$1,002 thousand at time of reinvestment. Cosmos Insurance Brokers soon recovered from deficits after becoming a fully owned subsidiary of the Bank. As of end of 2008, its net worth reached NT$7,181 thousand, demonstrating a rapid growth of insurance business. In order to provide comprehensive insurance plans for customers, Cosmos Insurance Brokers endeavors to introduce excellent products offered by insurance firms under a sound financial operation. It also provides a wide diversity of choices for various type of customers, including life insurance, health insurance, savings, investment and retirement planning which help customers to diversify and transfer risks in their respective stages of life as well as the pursuit of accumulated wealth at a robust pace. (2) The Bank did not undertake any merger, acquisition or corporate restructuring during the past year as of the printing date of the annual report. 4. Changes in Shareholding, Ownership and Other Major Events (1) The Bank completed its recapitalization exercise on December 28, 2007 where SAC Private Capital Group (“SAC”) and GE Money and their subsidiaries injected NT$29.7 billion into Cosmos Bank. SAC acquired 58.5% (on a fully diluted basis) of Cosmos shares by acquiring NT$21.45 billion of Series A Preferred Shares and Mandatory Convertible Bonds (MCB) newly issued by the Bank. GE Money acquired 23.2% (on a fully diluted basis) of Cosmos shares by acquiring NT$8.25 billion of common shares and MCB newly issued by the Bank. (2) In addition, the holders of unsecured MCB and subordinate Convertible Bond issued in 2006 have agreed to convert outstanding bonds into 2.1 billion common shares of the Bank, totaling 11.5% of Cosmos shares on a fully diluted basis. (3) Directors are appointed by S.A.C. and GE Money respectively to engage in decision-making of the Board of Directors. By introducing directors and management team with international experience plus the existing wealth of local knowledge, the Bank aims at becoming a local bank with world class capabilities. 6 5. History (1) Acquired the Tainan Fourth Credit Cooperative Bank, Miaoli Credit Cooperative Bank, and Hsinchu Fifth Credit Cooperative Bank on April 13, 1998, August 13, 2001, and July 28, 2003, respectively. Merged with the Cosmos Bills Finance Corp. on October 31, 2002. (2) The Bank launched the George & Mary Cash Card in 1999. (3) In 2001, the Bank and Core Pacific City Living Mall jointly issued the first chip credit card in Taiwan that met the EMV (Europay, MasterCard, Visa) standards. (4) Continually increase the auto-service network to provide convenient access for customers. (5) On January 23, 2006, Cosmos entered into an stock acquisition agreement with GE Capital Finance and completed the strategic investment project on June 8, 2006. GE has appointed senior executive officers to jointly manage the Bank's operations. The Bank took the opportunity to introduce GE's world-class management expertise to enhance our long-term competitive niche. (6) In 2006, the Bank issued the MoneyBack Platinum Card offering special discounts at department stores and cash rebate. (7) After the NT$4.2 billion recapitalization exercise on Dec. 28th 2007, SAC Private Capital Group (SAC PCG) became the biggest shareholder. In addition, GE Money has also participated in the capital injection and both now hold more than 80% of the Bank's shares in total.

Load more