Transcending 50 Challenging

Transcription

1 Transcending 50 Challenging A N N U A L R E P O R T

2 Financial Highlights Awards and Achievements Message to Shareholders Operating Results 20 Corporate & Investment Banking Financial Markets Consumer Finance Wealth Management Investment Management Insurance Fubon Bank (Hong Kong) Corporate Citizenship Corporate Governance Responsibility Statement Financial Statements

3 A dynamic first 50 years. 1,576,800,000 seconds Kept gaining energy Challenging boundaries with our dreams Positive forces that will power our future Deliver a broader tomorrow Fubon Ready to craft another magnificent half century Transcending Challenging

4 0 2 Financial Highlights Fubon Financial Holding In NT$ Million Total Assets 2,006,720 3,060,253 3,450,747 Shareholders' Equity 143, , ,390 Net Income 10,875 19,938 19,905 Earnings Per Share (NTD) Book Value Per Share (NTD) Return on Equity (%) 7.0% 11.3% 9.3% Return on Assets (%) 0.6% 0.8% 0.6% Above are the consolidated financial statements of Fubon Financial Holdings Co. and its subsidiaries. Total Assets ,006,720 3,060,253 3,450,747 Shareholders' Equity , , ,390 Net Income ,875 19,938 19,905

5 0 3 Taipei Fubon Bank Fubon Bank (Hong Kong) In NT$ Million In HK$ Million Net Interest 17,975 11,640 12,210 Net Interest Income 989 1, Commissions and Fee Revenues, Net 5,331 4,733 7,310 Net Fees and Commission Income Other Revenues Operating Expenses Pre-Provision Profit Provision for Bad-Debt Losses Net Income 2,711 12,677 13,340 5,512 6,021 5,629 12,419 9,583 3,937 5,222 3,036 13,628 8,928 1,020 7,281 Other Operating Income Operating Expenses Operating Profit before Gains and Impairment Losses Impairment Losses Profit for the Year Fubon Securities Fubon Asset Management In NT$ Million In NT$ Million Brokerage Commissions 3,609 4,632 4,514 Operating Revenues Net Interest Income 1, ,402 Operating Expenses Profit from trading securities,net Net Income (After Tax) Total Revenues 6,949 8,576 9,635 Operating Expenses 4,224 4,582 5,440 Net Income 1,199 2,408 2,124 AUM (average) 105, , ,607 * Consolidated financial statements Fubon Insurance In NT$ Million Direct Written Premium Net Written Premium Underwriting Profit Investment Income Net Income Fubon Life (Fubon only) In NT$ Million ,097 21,305 22,171 First Year Premium (1) 111, ,900 15,588 1,176 1,314 15,444 1,292 1,068 16,802 1,329 1,772 Investment Income Operating Revenue Operating Costs Net Income 13, , ,017 1,410 49, , ,300 10,870 2,045 1,371 2, ,738 86, , ,444 8,620 Net Claim Ratio Net Expense Ratio 47.05% 36.67% 49.66% 35.01% 52.32% 36.81% First Year Premium (2) 128,069 Interest-Sensitive 93, , , , ,882 Net Combined Ratio 83.73% 84.67% 89.13% Investment-Linked 17,015 15,830 4,463 Retention 70.54% 68.91% 72.75% Traditional 17,672 68, ,856 Note: (1) Excluding Investment-Linked (2) Including Investment-Linked

6 Awards and Achievements Euromoney Fubon Financial Best Debt House in Taiwan Taipei Fubon Bank Best Bank in Taiwan Asiamoney Fubon Financial Best Domestic Private Bank in Taiwan Best Domestic Provider in Cash Management Services voted by small Corporates in Taiwan Best Domestic Providers of FX services voted by Corporates in Taiwan FinanceAsia Fubon Financial Best Managed Company in Taiwan-Banks and Financial Institutions Best Corporate Governance in Taiwan-Banks and Financial Institutions Best Investor Relations in Taiwan-Banks and Financial Institutions Best Corporate Social Responsibility in Taiwan-Banks and Financial Institutions Most Committed to a Strong Dividend Policy in Taiwan-Banks and Financial Institutions The Asset Fubon Financial Best Domestic Investment Bank in Taiwan Corporate Award-Gold Award Winner Taipei Fubon Bank Best Trade Finance Bank in Taiwan Best Cash Management Bank in Taiwan Best Transaction Bank in Taiwan Best SME Bank in Taiwan Best Private Bank in Taiwan Fubon Securities Best Brokerage House in Taiwan Global Finance Fubon Financial Best Investment Bank in Taiwan Taipei Fubon Bank Best Trade Finance Provider in Taiwan Corporate Governance Asia Fubon Financial Chairman Daniel M. Tsai Asian Corporate Director Recognition Awards Fubon Financial Asia s Best Companies for Corporate Governance The Asian Banker Fubon Financial The Strongest Bank in Taiwan IR Magazine Fubon Financial Chairman Daniel M. Tsai Best Investor Relations by a CEO in Taiwan CommonWealth Magazine Fubon Financial Most Admired Financial Holding Company First Place Taipei Fubon Bank Most Admired Banking Company First Place among Domestic Banks Fubon Life Most Admired Insurance Company First Place Global Views Monthly Fubon Life Outstanding Service Award in Insurance Company First Place Taiwan Corporate Governance Association Fubon Financial Certificate of Corporate Governance System-CG6005 Advanced Assessment Taipei Fubon Bank Certificate of Corporate Governance System-CG6005 Advanced Assessment Fubon Insurance Certificate of Corporate Governance System-CG6005 Advanced Assessment Fubon Life Certificate of Corporate Governance System-CG6005 Advanced Assessment Fubon Securities Certificate of Corporate Governance System-CG6005 Advanced Assessment 12th Faith, Hope, and Love Awards of Insurance Fubon Insurance Distinguished Contribution Award for Insurance Education Distinguished Policy Designer Award for Non-Life Insurance Distinguished Profession Award for Non-Life Insurance Company Distinguished Representative Office Award for Non-Life Insurance Fubon Life Best Insurance Leader Award Distinguished Profession Award for Life Insurance Company Distinguished Contribution Award for Social Responsibility Distinguished Sales Strategy Award for Insurance Marketing Distinguished Award for Integrated Marketing Communications Distinguished Representative Office Award for Life Insurance Distinguished Profession Award for Life Insurance Distinguished Professional Sales Award for Life Insurance Distinguished Award for Insurance Career Achievement Distinguished Award for Social Contribution Risk Management, Insurance & Finance Fubon Insurance Most Well-Known Insurance Company First Place Best Corporate Image First Place Best Customer Service First Place Most Trustworthy Insurance Company First Place Most Recommended Insurance Company First Place Business Today-Evaluation for Wealth Management Banks Fubon Financial Overall Performance Ranking of Taiwan FHC First Place Financial Performance First Place Corporate Governance First Place Operation Quality Second Place Strategic Performance Second Place Taipei Fubon Bank Best Wealth Management Award First Place Best Performance Award First Place Best Risk Management Award First Place

7 0 5 Best Customer Services Award Second Place Best Professional Services Award Second Place Best Product Provider Award Second Place Best Customer Reliability Award Second Place Brand Appeal among Businesspeople Third Place among Internet Bankings Fubon Securities Brand Appeal among Businesspeople Second Place among Brokerage Industry Next Magazine Taipei Fubon Bank Top Service Awards: Banking First Place Fubon Life Top Service Awards: Life Insurance First Place Factors Chain International Taipei Fubon Bank Best Factoring Service Quality in Taiwan The Export Factoring Growth Award First Place IR Global Ranking Fubon Financial Best IR Website IDC Financial Insights Fubon Financial Enterprise Innovation Awards CIO of the year Taipei Fubon Bank Innovation in Customer Risk Management Gre Tai Securities Market (GTSM) Fubon Securities Outstanding in IPO Application Filing and GreTai Market Filing in 2010 Taiwan Stock Exchange Corporation (TWSE) Fubon Securities Ranked First in terms of Domestic IPO VISA Hong Kong Limited Fubon Bank (Hong Kong) Highest Retail Sales Volume Outstanding Retail Sales Volume Growth Bronze Prize MasterCard Worldwide Taipei Fubon Bank Best Product Innovation of the Year Fubon Bank (Hong Kong) The Highest Growth Rate in 2010 Cardholder Spending in Hong Kong 1st Runner Up The Highest Growth Rate in 2010 Number of Open Cards in Hong Kong 2nd Runner Up The Hong Kong Council of Social Service Fubon Bank (Hong Kong) Caring Company Logo Bank of New York Mellon Fubon Bank (Hong Kong) Straight Through Processing Award TFF-Bloomberg Best Fund Awards Fubon Asset Management The Best One-year and Three-year fund in the Domestic Mid/Small Cap Equity Fund Category-Fubon Elite Fund The Best Ten-year fund in the Domestic Equity Value Fund Category-Fubon Value Fund Fubon Securities Investment Services The Best Three-year Foreign Equity Fund from Greater China-GAM Star China Equity USD Acc Fund Lipper Fund Award Fubon Asset Management The Best Three-year Fund for Equity Taiwan Small and Mid Cap - Fubon Elite Fund Fubon Securities Investment Services The Best Three-year Fund in the China Equity Category-GAM Star China Equity USD Acc Fund Sports Affairs Council, Executive Yuan Fubon Financial Sports Promotion Awards Competition Sponsorship Golden Award Council for Cultural Affairs, The Executive Yuan Fubon Group Arts & Business Awards-Gold Award National Chengchi University Fubon Art Foundation Certificate of Appreciation, 2010 Very Fun Park Art Exhibition at NCCU

8 A n n u a l R e p o r t Message to Shareholders Dear Shareholders, Buoyed by the global economic recovery and revitalized financial markets, Fubon Financial posted robust profits in 2010, and the performances of group subsidiaries rebounded to pre-financial crisis levels. After-tax income was NT$ billion, the highest among domestic financial holding companies for the second consecutive year. Taiwan and China opened a new chapter in cross-taiwan Strait financial relations in June 2010 by signing an Economic Cooperation Framework Agreement (ECFA), which took effect in September. A Cross-strait Economic Cooperation Committee was established a few months later, in January 2011, further lifting the curtain on the new ECFA era. Fubon Financial is poised to capitalize on these advances by seeking out cooperative opportunities in various fields and maintaining a balanced approach to developing a presence in the Greater China market, hoping eventually to build the most complete financial services platform in the region. Celebrating the Fubon Group s 50th anniversary this year, Fubon Financial is determined to set a strong foundation for another exciting and prosperous half century. Remaining loyal to our core values of integrity, sincerity, professionalism and innovation, we will continue to attentively serve customers and expand the Group s reach in Greater China. Record-high Income Leads Industry Fueled by booming exports and a large increase in private investment, Taiwan s economy grew 10.82% in To maintain price and financial stability, Taiwan s central bank raised the discount rate by 12.5 basis points in each of the year s final three quarters, to 1.625% at the end of the year. Although Fubon subsidiaries continued to build reserves in anticipation of Statement of Financial Accounting Standards (SFAS) 34, that did not deter them from cashing in on the return to prosperity in Fubon Financial had after-tax net income of NT$ billion, or EPS of NT$2.33 a share. Return on assets (ROA) and return on equity (ROE) were 0.61% and 9.35% respectively. Fubon Financial also saw a robust increase in total assets in 2010, as the holdings of major Group subsidiaries grew at a far faster pace than the average in their sectors. Assets grew at 12.8% clip, nearly double the 7.5% asset growth in the industry, to NT$3.45 trillion at the end of, ranking Fubon Financial as the second biggest publicly listed financial holding company by assets in Taiwan. The economic recovery and improved consumer confidence strengthened investor sentiment in 2010, helping the Wealth Management Group see a rebound in fee income to levels attained before the global credit tsunami. Bolstered by strong sales of overseas mutual funds, the Wealth Management Group s fee income rose 44% from a year earlier and accounted for 69.1% of Taipei Fubon Bank s total fee income in Taipei Fubon Bank s after-tax income totaled NT$7.28 billion, or 37% of Fubon Financial s overall after-tax earnings. In June 2010, Fubon Life celebrated the one-year anniversary of its merger with ING Life, and the positive impact from the merger s synergies contributed to a robust bottom line. Fubon Life s after-tax income of NT$8.62 billion accounted for 43% of Fubon Financial s total after-tax earnings, the most of any of the holding company s subsidiaries, and clearly established the life insurer along with Taipei Fubon Bank as the Fubon Group s main profit engines. Fubon Bank (Hong Kong) saw profits stabilize on the strength of increased fee income and reduced pressure to set aside provisions. After-tax income was HK$266 million, up 1,080% from 2009, a clear sign that the Bank had recovered from losses on Lehman Mini-bonds and heavy provision pressure. Fubon Insurance had after-tax income of NT$2.67 billion in 2010, and its market share of 21.1% continued to lead the industry. Its net combined ratio rose to 89.1% because of the Jiasian earthquake and fires suffered by large policy holders, but still remained relatively strong. Direct written premium grew 4% year-on-year to NT$22.17 billion.

9 Daniel M. Tsai Chairman, Fubon Financial Benefiting from a bullish market in 2010, Fubon Securities posted after-tax income of NT$2.055 billion, and it remained in the top three in brokerage business market share. In recent years, Fubon Securities has aggressively developed an e-trading platform that has won the acclaim of customers. In 2010 the platform handled NT$1.34 trillion in trades, up 29% from 2009, the highest growth rate of any e-trading system among Taiwan s major brokerage houses. Fubon Life: Emerging as Regional Life Insurer Robust growth in traditional policy sales and momentum generated by insurance agents helped Fubon Life s first year premium climb 50.8% in 2010 to NT$310.2 billion and total premium rise 34.7% to NT$438.2 billion. First year premium and total premium market shares remained the second highest in the industry at 26.7% and 19.0%, respectively. Follow initiatives to adjust its product mix and lower the cost of liability, Fubon Life saw its overall cost of liability fall to 4.16% in 2010 from 4.56% in 2009, helping narrow the company s negative interest spread. Moving forward, the company intends to sustain growth momentum through continued increases in traditional policy sales and the balanced development of bancassurance and life insurance agent channels. Fubon Life has also been keen to expand its regional reach. Its subsidiary in Vietnam, Fubon Life Insurance (Vietnam) Co., received its business license on Dec. 23, 2010 and formally began operations in March The move represented the company s ascension into the ranks of regional life insurers in Asia. As of September 2010, the life insurance coverage rate in Vietnam was only 5%, far lower than Taiwan s more than 200%, indicating the market s massive potential. With the support of Fubon Financial s deep resources, the Vietnam subsidiary will try to embrace its parent company s successful experience in building local brand recognition and develop the insurance market through a strong specialized agent channel. In the China market, Fubon Life and Nanjing Zijin Investment Co. signed a letter of intent in 2010 to set up a joint venture called Fubon Zijin Life.

10 A n n u a l R e p o r t Fubon Insurance: Pioneering China s Market Fubon Insurance s China subsidiary Fubon Property & Casualty Insurance Co. formally opened on Nov. 10, 2010, becoming the first Taiwan-invested P&C insurer to operate in China after the signing of the ECFA and representing another major step in Fubon Financial s deployment there. Fubon Property & Casualty, in which Fubon Life and Fubon Insurance each have 50% stakes, has paid-in capital of 400 million Renminbi(RMB). Headquartered in Xiamen, it will focus initially on cultivating the Xiamen and Fujian province P&C insurance markets. The company s strategy will be patterned after Taiwan s diversified sales model and successful experience, emphasizing for example the development of strategic alliances with major banks and new marketing techniques such as telemarketing, to develop a foothold in the local market. Fubon Property & Casualty has already forged a strategic alliance that includes Xiamen Bank, the Xiamen branches of China Construction Bank and Bank of China, leading insurers such as PICC Property and Casualty Company and China Life Insurance (Group) Company, and China Telecom to jointly promote diversified marketing and insurance services. One of Xiamen s 10 biggest state-run companies, Xiamen Port Holding Group Co., also has become an important strategic alliance partner, contracting Fubon Property & Casualty to provide a full range of insurance services to its subsidiaries. Xiamen Bank: Creating a Haixi Financial Gateway Xiamen Bank is Fubon Financial s first beachhead in the Western Taiwan Straits Economic Zone (also known as the Haixi Economic Zone), which comprises parts of Fujian, Guangdong and Jiangxi provinces across the Taiwan Strait from Taiwan. After strengthening its asset quality in 2009, Xiamen Bank had a banner year last year. Unhindered by general credit tightening measures, its outstanding loan balance grew 23% in 2010 and after-tax income grew 123% to 143 million RMB. The nonperforming loan rate fell to 1.47% in 2010, down from 3.98% in 2008, and the NPL coverage ratio rose to 213.5%, from 80% two years earlier. Xiamen Bank extended its reach beyond the city for the first time in 2010 when it set up a branch in Fuzhou. It formally opened a second branch in Quanzhou on March 14, 2011 and plans in the future to expand beyond Fujian province. Approval for a Chongqing branch has already been received and Zhangzhou, Tianjin and Nanchang are also being targeted as possible branch locations. This expansion strategy is intended to position Xiamen Bank as the Haixi Zone s Financial Gateway, serving Taiwaninvested businesses there and deepening its foothold in the local market. Benefiting from the Fubon Group s rich corporate banking experience, Xiamen Bank became the first financial services institution in China to set up a Taiwan Corporate Banking Department, highlighting the Bank s pride in serving Taiwan-invested businesses in the region. In 2009, it also inaugurated a Small Business Department, dramatically enhancing the efficiency of its financing services for small and medium-sized enterprises. Building the Ideal Financial Services Platform in Greater China Aside from gaining footholds in the Haixi Economic Zone with bank and P&C insurance branches, Fubon Financial is also actively seeking cooperative opportunities in other sectors that will contribute to building Greater China s most complete financial services platform. In October 2010, Fubon Life and Nanjing Zijin Investment Co. signed a letter of intent to set up a joint venture called Fubon Zijin Life to be headquartered in Nanjing. It was the first life insurance joint venture deal to be signed by any Taiwanese and Chinese companies after the ECFA took effect in September. Inroads were also made in the fund management sector. Fubon Asset Management announced in August 2010 that it had agreed to set up a joint venture with China Founder Securities called Founder Fubon Fund Management Co. The new company will have 200 million in registered capital and be headquartered in Beijing. At the end of 2010, Taiwan s main financial regulator, the Financial Supervisory Commission approved the deal, and once Chinese financial regulators also give the deal the green light, it will become the first fund management joint venture between Taiwanese and Chinese interests and represent a major

11 Richard M. Tsai Vice Chairman, Fubon Financial milestone in the cross-strait securities sector. Controlling Risk to Sustain Strong Capital Structure In the process of expanding Group operations, Fubon Financial has remained extremely attentive to risk management, maintaining a strong capital structure and a level of asset quality that exceeds the market average. In 2010, our capital adequacy ratio was %, far above the legally mandated 100%. Taipei Fubon Bank's BIS ratio was 12.99% as of the end of 2010, an indication of the bank s strong capital position. Its nonperforming loan ratio fell to 0.32%, from 0.53% a year earlier, well below the industry average of 0.61%. Also, in anticipation of SFAS 34 taking effect at the beginning of 2011, Taipei Fubon Bank set aside NT$1 billion in reserves in 2009 and continued strengthening reserves in 2010, pushing its coverage ratio to % by the end of the year. That was far better than the % averaged by the industry. The strength of our operating performance and asset quality were reflected in positive ratings by credit rating agencies. Taiwan Ratings Corp. announced on Nov. 18, 2010 that Fubon Financial's long-term rating remained at twaa and its short-term rating remained at twa-1+, with the company's outlook stable. The ratings clearly reflected Fubon's superior profit-generating capability and asset quality compared with others in the industry. The ratings of various rating agencies in 2010 were as follows: Rating Agency Type International Domestic Credit Rating Rating Agency Standard & Poor's Moody's Taiwan Ratings Corp. Long-term BBB Baa1 twaa Short-term A-2 twa-1 Outlook stable stable stable Effective Date 2010/11/ /02/ /11/18

12 A n n u a l R e p o r t Setting the Standard for Corporate Governance Fubon Financial firmly believes that sound corporate governance is the pillar of sustainable development. Of the 12 members on Fubon Financial s board, four are independent directors, and the 33% ratio of independent directors to total board members is the highest of any domestic financial holding company. In recent years, Fubon Financial has also established Auditing and Corporate Governance committees. These stringent practices have helped Fubon Financial stand out as a benchmark for corporate governance in Taiwan and in the region and earned the recognition of a number of specialized international publications. Fubon Financial, which was previously honored by Euromoney for Best Corporate Governance in Taiwan s banking and financial sector for six consecutive years and as one of the Best Managed Companies in Asia s banking and financial sector for three straight years, won a recognition award from Corporate Governance Asia for the second straight year in 2010 as one of the Best of Asia for corporate governance. Fubon Financial also emerged as the only repeat winner among local financial holding companies in FinanceAsia s annual awards, being honored for Best Managed Company, Best Corporate Governance, Best Corporate Social Responsibility and Best Investor Relations among banks and financial institutions in Taiwan for a second year in a row. We have long made investor relations a major priority, and part of that commitment has involved building an investor relations web page to provide the most complete financial data in real time to institutional investors and analysts. Our online portal was recognized in 2010 by IR Global Rankings, which ranked Fubon Financial s IR Website as one of the best in Greater China. Fubon Financial s strong corporate governance performance helped Fubon Financial Chairman Daniel M. Tsai earn individual recognition in the field. He won an Asian Corporate Director Recognition Award for Taiwan from Corporate Governance Asia in 2010 and soon after was cited for Best Investor Relations by a CEO (Taiwan) by IR Magazine. Repeating as the Most Admired Company in the Industry Fubon Financial and Group subsidiaries also dominated the financial services sector in Common- Wealth Magazine s 2010 Most Admired Company Survey. Fubon Financial repeated as the most admired among financial holding companies on the strength of its outstanding vision, innovation capability and international reach. Fubon Life was again rated the most admired insurer, and Taipei Fubon Bank repeated as the most admired domestic bank. Following the signing of the ECFA, Fubon Financial adopted an aggressive dual-axis strategy emphasizing corporate banking and consumer finance to gain a foothold in China s banking market. Drawing on its experience, it will introduce its best services into the new market, CommonWealth Magazine said in describing Fubon Financial. In this year s most admired ratings, Fubon Financial led all financial holding companies in five major categories: operational performance, the ability to look ahead, innovation capability, international reach and talent cultivation. The robust performance of Fubon Financial s subsidiaries in 2010 also earned the recognition of prominent domestic and foreign financial publications. Taipei Fubon Bank was named Best Bank in Taiwan and Best Debt House in Taiwan by Euromoney and Best Domestic Provider of Cash Management Services as voted by small corporates in Taiwan and Best Domestic Provider of FX Services as voted by corporates in Taiwan polls conducted by Asiamoney. Taipei Fubon Bank was also honored by Global Finance as Taiwan s Best Trade Finance Provider and Best Investment Bank in 2010 and by The Asset as Best Transaction Bank in Taiwan. Fubon s Private Banking division, which offers clients customized financial services, also earned widespread recognition in Taipei Fubon Bank was named Taiwan s Best Domestic Private Bank by Asiamoney for the second consecutive year and Best Private Bank in Taiwan by The Asset. Fubon Securities was named Best Brokerage House in Taiwan in 2010 and 2011 for its outstanding underwriting performance, making it Taiwan s first and only general brokerage house to ever win the prestigious honor. At the 2010 Faith, Hope and Love Awards of Insurance, Fubon Insurance won four awards, including the Distinguished Profession Award for a Non-life

13 M e s s a g e t o S h a r e h o l d e r s 11 Management Team Victor Kung President, Fubon Financial Tsan-Ming Shih Chairman, Fubon Insurance Benny Chen Chairman, Fubon Securities Peng-Yuan Cheng President, Fubon Life Jerry Harn President, Taipei Fubon Bank Thomas Liang Managing Director, Fubon Bank (Hong Kong)

14 A n n u a l R e p o r t Fubon Financial Corporate Center Corporate & Investment Banking Consumer Finance Investment Management Information Technology Center Financial Markets Wealth Management Insurance Insurance Company, and Fubon Life captured 10 honors, including the Distinguished Award for Social Contribution. CSR: Providing a Bridge to Hope In August 2009, Typhoon Morakot destroyed a bridge at the entrance to the mountainous village of Koushe in Sandimen Township in southern Taiwan, isolating the village from the outside world. To restore traffic links as quickly as possible, the Fubon Charity Foundation donated funds to rebuild the bridge and commissioned the private Chiayi City Chiayi Charity Organization, known for its bridge building capabilities, to help with the job. On Dec. 11, 2010, the Fubon Bridge was formally opened, giving Koushe elementary school students a safe road on which to get to school, and it manifested the Fubon Group s unwavering commitment to corporate social responsibility. For many years, Fubon Financial has used its social welfare platform comprised of four major foundations to get involved in charitable works in many fields and live the spirit of giving back to society what one gains from society. This dedication to social welfare has become a key catalyst of Fubon Financial s sustainable operations. The Fubon Charity Foundation, now in its 22nd year, has long provided emergency relief and assistance and also helped economically disadvantaged children realize their dream of getting an education through its Making Friends with Love campaign. In 2010, the program distributed NT$122 million to help 16,953 students stay in school. The Fubon Cultural & Educational Foundation, now in its 20th year, has long been devoted to helping teenagers improve their potential, promoting parentchild interaction and connecting Taiwan with the rest of the world, and it recently instituted an innovative Young Voice, Young Life, Young Career campaign to help meet those goals. In 2010, an initiative was launched with the Syin-Lu Social Welfare Foundation to mobilize resources to help children living in remote areas who have development delays and make sure that they receive early intervention services. The Fubon Art Foundation is devoted to fostering cultural citizens and infusing art into people s daily lives through efforts to strengthen cultural roots, promote humanism, and bring art to life. The Taipei Fubon Bank Charity Foundation is dedicated to caring for the physical and mental well-being of the elderly, encouraging people with disabilities to grow artistically and athletically, and helping the economically disadvantaged escape poverty. The Ideal Financial Services Platform in Greater China Many signs point to the continuing recovery of the global economy in The U.S. economic rebound continues to pick up strength and growth momentum remains strong in emerging economies, especially China and India. Taiwan s economy has also been rejuvenated, and the Directorate General of Budget, Accounting and Statistics has projected 4.92% growth for the country in But volatility in financial markets remains a concern. The key development strategies and goals for 2011 for each of our six business groups are as follows: 1.Corporate & Investment Banking Group The Group will focus on improving domestic coverage rate, deepening relationships with clients, and expanding client bases overseas. In China, customers in the southern and eastern part of the country will be targeted, and the Xiamen Bank platform will be used to better grasp local banking operations and capitalize on cross-strait banking opportunities. The Group s underwriting strategy will be to pursue larger benchmark projects or the public listings or TDR issuances

15 M e s s a g e t o S h a r e h o l d e r s 13 planned by overseas Taiwanese businesses returning home to raise funds, with the goal of becoming the underwriter of choice for all such companies in the Asia-Pacific region. 2.Financial Markets Group The Group will look to expand cooperation with the Corporate & Investment Banking Group to improve efficiency and strengthen the interest-rate derivative business by continuing to launch new structured products, reach into new markets and diversify profit sources. In the FX business, the priority will be to build a Greater China franchise base to improve profitability, while in the warrants market, the goal will be to build the Fubon brand image by developing new offerings and more actively marketing our services. 3.Consumer Finance Group The Group will concentrate on creating innovative mortgages and cultivating quality prospects and referrals from top corporate clients in second-tier cities. Aside from retaining the existing network of developer and real estate broker channels, the Group will also build an online channel and launch a land agent classification system that rewards top performing agents. Finally, the Group s credit card strategy will target young customers to develop a new customer base and elite consumers to help improve penetration rates at the top of the consumer pyramid. 4.Wealth Management Group Among the Group s main priorities will be to optimize the currency allocation of customers asset portfolios to diversify risk and enhance investment performance; cultivate private banking and online investing customers; and develop mobile banking by collaborating with Taiwan Mobile to offer customers value-added services. Other key strategies will involve strengthening institutional client services and promoting sub-brokerage services. After having obtained QFII status from China, Fubon Asset Management expects to introduce offshore ETF products and establish a joint venture asset management company on the mainland. The next step, once legal restrictions are eased, will be to issue purely China funds, helping the firm emerge as the asset manager of choice in Greater China 5.Investment Management Group With Fubon Life assets expected to climb to NT$1.66 trillion in 2011, the Group s investment strategy will focus on generating stable long-term investment returns, primarily by increasing fixed-income assets but also by adding holdings of property and blue-chip stocks with stable revenue streams. Approval has been given to increase the weight of offshore holdings to 40%, allowing an increase in the allocation of offshore fixed-income assets and long-term debt. In terms of direct and venture capital investments, the main targets will be businesses in the environmental and green energy, media channel, biotechnology and emerging technology sectors. 6.Insurance Group Fubon Insurance expects to ride growth momentum from Fubon Life and external distribution channels to expand its personal insurance business, while also making every effort to promote corporate insurance programs, develop new products and capitalize on public infrastructure or post-disaster reconstruction opportunities. Intensifying its presence in overseas markets, such as China and Vietnam, will also be a priority. Fubon Life will try to sustain the balanced development of its three major distribution channels and draw on Fubon Financial resources to improve cross-selling results. The strategy to grow overseas will initially rely on Vietnam subsidiaries in Hanoi and Ho Chi Minh City and on joint ventures with Chinese partners to make inroads into China s life insurance market is a special year for the Fubon Group because it marks the company s 50th anniversary. As we contemplate our next 50 years, we hope to ensure sustainable operations by strengthening corporate governance and moving toward institutionalization. Fubon Financial will continue to stand firmly in Taiwan and pursue steady growth, while expanding our presence in the Greater China market as we move steadily closer to our aspiration of becoming one of Asia s first-class financial institutions. Daniel M. Tsai Chairman, Fubon Financial Richard M. Tsai Vice Chairman, Fubon Financial

16 EXCELLENCE Leading the Industry in Profitability The synergies from Fubon Life s merger with ING Life were fully unleashed in 2010, enabling Fubon Life to become, along with Taipei Fubon Bank, Fubon Financial s top profit engine. Fubon Financial s after-tax income was NT$ billion, the highest among Taiwan s financial holding companies for the second consecutive year.

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19 LEADERSHIP Aggressively Expanding in Greater China Fubon Insurance s China subsidiary Fubon Property & Casualty Insurance Co. formally opened on Nov. 10, 2010, becoming the first Taiwan-invested P&C insurer to operate in China after the signing of the ECFA. It represented another major step in Fubon Financial s advance into the mainland market.

20 PRIDE Setting the Standard for the Industry Fubon Financial and its subsidiaries earned the recognition of prominent financial publications for their robust performance in 2010 and were also honored for the sixth consecutive year for Best Corporate Governance in Taiwan. These honors reflect Fubon Financial s steady progress in realizing its vision of becoming one of Asia s first-class financial institutions.

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22 A n n u a l R e p o r t Corporate & Investment Banking Strengthening Regional Presence through Resource Integration The Corporate & Investment Banking Group puts a premium on growing closer to clients and meeting their needs in a timely manner. To meet those goals, our specialized and innovative marketing and product teams have devised a systematic approach that has expanded our client base, segmented clients by their size and sector and then designated a single Relationship Manager to take care of their specific needs. In 2010, we further consolidated our operations and expanded our overseas network. With the acquisition of Chinfon Commercial Bank s two branches in Vietnam and their subsequent integration, Taipei Fubon Bank emerged as the leading Taiwanese bank in Vietnam with a total of three branches two in Ho Chi Minh City and one in Hanoi. Fubon Financial subsidiary Fubon Bank (Hong Kong) revamped its Corporate & Investment Banking team and strengthened risk management and product functions, while also accelerating the building of its platform in mainland Chinese locations in line with Fubon Financial s resource

23 C o r p o r a t e & I n v e s t m e n t B a n k i n g 2 1 integration drive. Xiamen Bank, in which Fubon Financial has a 19.99% stake, introduced a new banking platform that includes factoring services and small business credit, delivering a more diverse range of products and services to local clients. Our corporate banking network now covers the major locations where Taiwanese businesses have developed strong presences Taiwan, Hong Kong, Vietnam and the United States bringing them Fubon s typically comprehensive range of financial services. Improving Service to Enhance Client Satisfaction The Corporate & Investment Banking Group continued to strengthen its financial product features in 2010, opening a Chinese yuan services platform in Hong Kong and strengthening the functions of the Fubon Business Online portal. The site, which now covers Taiwan, Hong Kong and Vietnam, delivers outstanding cross-regional cash logistics services to our clients. In addition, overseas branches deployed product specialists for the first time in 2010 to help relationship managers market localized and specialized real-time services. Thriving in an Intensely Competitive Market Taiwan s economy grew 10.82% in 2010, the result of rebounding exports and domestic demand and the low baseline set in As the economic recovery took hold, Taiwan s central bank raised interest rates by 12.5 basis points in June and September to rein in capital flows, but plenty of liquidity remained in the market. Despite facing an intensely competitive environment, the Corporate Investment & Banking Group delivered outstanding results through strategies aimed at deepening

24 A n n u a l R e p o r t relationships with existing customers, developing new clients and effectively controlling credit risk. Our commercial banking operation s outstanding loan balance to public and private enterprises remained the highest among private banks as of the end of 2010, with a market share of 3.57%. Our factoring business, benefiting from the recovering global economy and an increase in transaction volume, saw market share soar to 18.3% last year, the second highest in the industry, after ranking fourth with a 12.8% share in These achievements earned the Group international accolades in Taipei Fubon Bank was recognized by Factors Chain International for Best Factoring Service Quality in Taiwan and by The Asset as Taiwan s Best Trade Finance Bank, Best Cash Management Bank, Best Transaction Bank and Best SME Bank. In investment banking, our 7.49% share of the syndicated loan market (not including the Taiwan High-Speed Rail Corp. deal) ranked fifth among all banks in Taiwan and the highest among private banks. Our 17.2% share of the transaction volume on the GreTai Emerging Stock Market ranked second in the industry for the third consecutive year, and we also remained among the major players in IPO underwriting by amount and SPO amount. By virtue of this impressive performance, Fubon Financial was named Best Investment Bank in Taiwan by Global Finance and Best Domestic Investment Bank in Taiwan by The Asset, and Fubon Securities was named by Taiwan Stock Exchange Corp. as the No. 1 underwriter of IPO applications for domestic companies. In terms of overall performance, operating revenues remained on a par with 2009 despite pressures from a narrowing interest rate spread and early repayments of large loans, and net income (after provisions) rose 24.6%, exceeding the budgeted target, thanks to tight cost controls, effective credit risk management, and a reduction in provision costs. Consolidation in Taiwan, Expansion into Greater China In 2011, the global economy s steady recovery should generate greater corporate demand for funds to support higher working capital and capital expenditure needs. Merger and acquisition activity in selected industries and the further tightening of credit in China to cope with inflation should also support higher fund demand. The Corporate & Investment Banking Group expects to capitalize on these trends by offering premium commercial and investment banking products and services to clients through our extended platform (covering Taiwan, Hong Kong, China, Vietnam and the United States) and our highly specialized marketing team of relationship and product managers. The following strategies are being adopted to further solidify the Bank s corporate banking operations: Business Expansion: At home, the Group intends to strengthen the coverage rate of domestic customer segments and deepen relationships with clients. Overseas, expanding our client base and optimizing the benefits from the consolidation of the two branches acquired from Chinfon Commercial Bank in Vietnam remain top priorities. In China, efforts have been made through affiliate Xiamen Bank to prepare to set up branches there in the future that would primarily target customers in the southern and eastern parts of the country, leaving us well positioned to capitalize on opportunities created by the continuing liberalization of the cross- Taiwan Strait banking sector. Product Planning and Operational Performance: The Fubon Business Online regional e-banking platform currently covers Taiwan, Hong Kong and Vietnam. The platform is expected to be an attractive tool in vying for corporate clients regular banking business and should serve as a stable, low-cost, long-term source of funds while also helping the Group control credit risk. Core systems

25 C o r p o r a t e & I n v e s t m e n t B a n k i n g 2 3 Factoring business market share rose from fourth in 2009 to second in for overseas branches are now also being built to support their development and strengthen preparations to establish branches in China, and their convenient banking functions will be an important asset in attracting business in regions where Fubon has a presence. Risk Management and Asset Quality: In anticipation of the arrival of Basel II, Taipei Fubon Bank will continue to upgrade the validation of its risk model and ratings system, using its internal credit risk model as a base, and develop an LGD/EAD model with the help of outside consultants. These improved tools will help assess the cost of risk in pricing strategies, allowing for the trade-off between risk and reward to be more accurately reflected. In addition, the Group will enhance its ability to conduct industry surveys and credit analyses overseas and consolidate operating processes and systems to better meet the needs of overseas business development and ensure that service capabilities are consistent at home and abroad. Efforts will also be made to upgrade the automated functions of the Group s early-warning and loan management systems to help monitor asset quality. As of the end of 2010, the Corporate & Investment Banking Group had a nonperforming loan rate of only 0.56%, indicating that asset quality remained stable. Internal Management and Human Resources: The Corporate & Investment Banking Group successfully installed an activity-based costing (ABC) management system in 2010 that will help manage costs more effectively and enhance resource use efficiency based on precise scientific methods. Continued emphasis will also be placed on internal training, the recruitment of external talent, and a talent incubation program to create a large, high-caliber pool of talented specialists capable of supporting the personnel needs of overseas expansion. These initiatives should give the Group a clear competitive edge over the midand long-term. Anchored on a foundation that continues to get stronger, the Corporate & Investment Banking Group has seen net income after provisions grow steadily in recent years. Based on cautious optimism over economic prospects for 2011, we expect to further strengthen and consolidate our position in the domestic market and accelerate our push into Greater China, aiming to position ourselves as the preferred corporate banking group among Taiwanese businesses operating in the region.

26 A n n u a l R e p o r t Financial Markets Strong Foundation Underpins Continuing Success The Financial Markets Group s primary objectives are to increase franchise business flows and generate stable profitability. Particular emphasis is placed on treasury sales, the most representative benchmark of franchise business income. In 2010, revenue from treasury sales rose 28% from a year earlier, an indication that expanding business development in the sector has paid dividends. FX options revenue grew 33% in 2009, benefiting from the strong growth in treasury sales and the timely introduction of innovative products that met the needs of customers and the market. In the second half of 2010, we began offering services to foreign institutional investors (FINI) for the first time, helping round out our overall business development. In 2011, the Financial Markets Group s main goal will be to sustain balanced development by increasing franchise business revenues, capitalizing on key turning points in the market to generate profits, and strengthening FINI business growth.

27 F i n a n c i a l M a r k e t s 2 5 Enhancing Treasury Sales, Broadening Our Customer Base The treasury sales team has consistently pursued a strategy focused on increasing sales and broadening the customer base. Beginning in 2008, the team began cooperating closely with the Corporate & Investment Banking Group to cultivate corporate and institutional clients in Taiwan and solicit Taiwanese customers based in China, while also introducing more high-margin products. As a result, income from treasury sales rose 28% in 2010 and was 4.5 times as high as in In the year ahead, we will step up efforts to recruit outside talent and expand efforts to promote treasury sales, while at the same time capitalizing on market trends to present clients with opportunities catering to changes in their businesses. Upgrading product innovation capabilities to satisfy clients increasingly diversified needs will also remain a top priority, and we will continue to cooperate closely with the Corporate & Investment Banking Group to provide a full range of financial services to clients throughout Greater China. A Premium FX Brand The FX business grew more diversified in 2010 as a result of ongoing infrastructure development and product innovation. After becoming in 2009 the first bank in Taiwan to price and manage exotic options, Taipei Fubon Bank began pricing pivot options in April This new product capability drew more clients willing to have the Bank underwrite second generation exotic options, driving the Bank s options volume higher. In 2011, the emphasis will be on pricing a wider range of exotic options to better satisfy

28 A n n u a l R e p o r t Drumming up excitement, the Financial Markets Group is poised to hit a new high. clients diverse needs and increasing market share in interbank FX trading volume among domestic banks and small- and medium-sized banks in Hong Kong. Exploiting FX service opportunities in China once legal and regulatory hurdles are cleared will also be a priority to help the Financial Markets Group emerge as a leading FX market maker in Greater China (Taiwan, Hong Kong and China). Taiwan s Leading Interest-rate Derivative Brand Between 2008 and 2010, the Financial Markets Group introduced 16 interest rate structured products designed in-house and emerged as the leading market maker in Taiwan for interest-based products, after becoming the main quoting bank for U.S. dollar to Taiwan dollar FX swaps in New structured products continued to be developed to offer clients a more diversified range of options and risk management of interest-rate derivatives is being enhanced through the improved efficiency of our trading system. The top priorities for 2011 will be to emerge as the main source of derivatives quotes for other domestic financial institutions and as the leading brand for interest-based products, in part by drawing on the successful FX swap model. Opportunities will also be pursued in China, Hong Kong and Vietnam in line with Fubon Financial s overseas expansion strategy. Finally, initiatives will be taken to further nurture derivatives specialists, enhance trading capabilities, and ultimately become a world class business group. Forging a New Image in Equity Derivatives In 2010, the equity derivatives division aggressively expanded the scale of its operations, recruiting a large pool of new talent, and adjusted its warrants issuance and trading strategies. As a result, the volume of warrants issued in 2010 rose 107% year-on-year, and earnings were considerably higher than in In 2011, the division hopes to build the Fubon s brand image in the warrants business and improve Fubon s share of the warrants market by creating and building a trading system, developing new products, and marketing warrants more actively. Proprietary Trading: Pursuing High Returns but Wary of Risk Because of the systematic risk fueled by the European sovereign debt crisis, Taiwan s stock market retreated in the first half of 2010, leading

29 F i n a n c i a l M a r k e t s 2 7 to results that fell short of expectations. In 2011, the proprietary trading division will rely on fundamentals to pick stocks, leverage trends, devise different trading strategies to diversify profit sources, and strictly enforce stop-loss guidelines. These efforts will support the goal of maximizing returns predicated on a sound risk management foundation. Sustaining Domestic Bond Growth The uncertain prospects of the economic recovery in 2010 kept yield rates at a historically low level, complicating trading in Taiwan s bond market. Although earnings from domestic bond trading were not as strong as in recent years, they remained substantial under difficult circumstances through a strategy that balanced risk and returns. The Financial Market Group s seasoned domestic bond trading team continues to face challenges even as the economy strengthens. To cope with these issues, greater focus will be given to monitoring market changes, strengthening the team s grasp of market trends, and adjusting bond holdings in a timely manner. The team will also look to deepen its client base, improve the accuracy of information clients receive, increase research functions, and optimize its investment portfolio in the pursuit of more stable revenues. Foreign Bonds: Stable Returns In 2010, the European debt crisis led to considerable volatility in credit markets everywhere. Volatility cycles were shortened, increasing the difficulty of identifying worthwhile investment targets, and earnings fell below expectations. Considerable effort was made, however, to maintain interest rate spread levels, and asset volume grew more stable, helping diversify product risk. Moving forward, new efforts will be made to better analyze and weigh varying investment targets against each other, lower investment risk and anticipate and react to market volatility. These strategies should expand foreign bond exposure and increase the Group s overall profitability. Taiwan s Unrivaled FINI Brand In the second half of 2010, the Financial Markets Group began servicing foreign institutional clients and will continue leveraging local securities brokers exclusive niches by offering FINIs market differentiated products and services. Targeted client segments will be pursued through an integrated team marketing approach supported by Corporate & Investment Banking Group resources and Wealth Management Group research. Strong Profits on the Horizon Looking ahead, the Financial Markets Group is determined to narrow the gap with our main competitors by diversifying sources of franchise business revenue and expanding treasury sales. Closer collaboration with our distribution channels (the Corporate & Investment Banking and Wealth Management groups) will enable us to improve efficiency, strengthen exclusive services for key clients, and maximize opportunities by offering customers a unique range of products and services. Efforts will also be made to expand our share of interbank interest rate- and exchange-related business volume in Greater China and broaden our presence in the market, initiatives that will diversify sources of income and increase profit opportunities. In addition, initiatives to capitalize on pivotal turning points in the market, create new revenue streams from different types of trading, and generate FINI business growth will help increase sources of income. All of these strategies should help us move steadily closer to our goal of sustainably expanding profitability.

30 A n n u a l R e p o r t Consumer Finance Strong Engine of Growth Hitting New Highs Taiwan s economy rebounded strongly in 2010, and public and private investment rose significantly. Consumer confidence also showed marked improvement, generating continued growth in private demand for funds. Amid the economic recovery, the Consumer Finance Group launched innovative product marketing campaigns and risk management mechanisms, strengthened customer segmentation strategies, and optimized cross-selling synergies, resulting in strong performances in the credit card and personal loan businesses that far outpaced the competition. With steady economic growth expected to continue in 2011, the Consumer Finance Group remains committed to pursuing steady profit growth through sound management and innovation. We expect to again generate outstanding results this year with the help of an ambitious strategy and sound execution and sustain our positive role as Fubon Financial s leading profit engine.

31 C o n s u m e r F i n a n c e 2 9 Improved Asset Quality through a Balanced Strategy Taipei Fubon Bank s personal loan business adopted a balanced strategy in 2010 that relied on diversifying products and services to satisfy customers many borrowing needs, pursuing steady profit growth, and strengthening asset quality. The Bank s outstanding mortgage balance rose 9.4%, nearly four times the 2.5% averaged industry-wide. The outstanding consumer loan balance rose 11.4%, easily outpacing the 3.47% growth seen in The Bank s mortgage business continued to be driven by a number of outstanding products. The Fubon Optimal Mortgage plan features multiple interest rate options, such as adjustable rate and dual-indexed adjustable rate mortgages and fixed rate mortgages with varying maturities. The Fubon Fortune Mortgage plan converts repaid principal into a revolving credit facility that can be accessed online or through a passbook or debit card, giving customers maximum flexibility in managing their money. Another insurance product, the Mortgage Life Insurance Plan, covers outstanding mortgage payments and helps families maintain ownership of their homes if their main income earner is somehow incapacitated. The new Reward Redemption Mortgage Payment Plan, the first of its kind in the industry, enables Fubon credit card and mortgage holders to use credit card reward points to offset mortgage interest costs. In the area of consumer credit, our operating model has stressed customer differentiation and strengthened product design to better meet customer needs. Risk is carefully controlled through

32 A n n u a l R e p o r t Press conference launching Fubon-Hankyu co-branded card. Press conference launching Fubon Fortune Card. a credit rating model that helps manage customer groups more precisely and provides the basis for differentiated pricing based on customers risk profiles. Aside from consolidating our customer base, the Consumer Finance Group also extended the Group s distribution network, including tapping into Fubon Financial s extensive client base for referrals of employees of Fubon s top corporate clients. Limited-time promotions were again launched to coincide with peak seasonal demand for cash, the Lunar New Year holiday and tax filing season among them. These promotions enhanced card usage and heightened the Fubon name s resonance and recognition in the market. Getting an Edge with Segmentation Strategies Corporate profit growth in Taiwan pushed employment and wages higher in 2010, driving credit card spending higher. Capitalizing on the recovery and market trends, the Bank developed a range of co-branded cards that successfully generated a flood of applications from new card users and helped us lead the industry in cards issued for four consecutive months. The Bank also strengthened the benefits of card campaigns focused on daily commodities, offering more incentives tailored to meet card holder needs. That helped improve our card activation rate to 74.48%, the highest of any domestic bank. High fee income products, such as installment payment plans, were also enhanced, helping drive per card spending higher by 36.8% in 2010 to an average of NT$5,363 per month. Fubon handled a total of NT$126.5 billion in credit card transactions for the year. The Fubon Fortune Card sent shock waves through the industry when it hit the market in June Offering a 0.5% cash rebate on all purchases and special rewards when spending targets were achieved (such as a 32-inch LCD TV for those who spent at least NT$200,000 in four months), the card had a tremendous response and became a market leader, with 200,000 issued in a mere four months. The success of the Fortune Card was followed by a co-branded Uni-hankyu Department Store EasyCard that completed the Bank s lineup of co-branded cards covering department stores in northern, central and southern Taiwan. Aside from its obvious EasyCard public transportation functions, the card also had a unique advantage at the Uni-hankyu Department Store and adjacent bus station hub in downtown Taipei. At designated stores in the complex, card holders were offered buy one get one free or buy three get three

33 C o n s u m e r F i n a n c e 3 1 free promotions, or other benefits. The department store s market position and the card s incentives successfully attracted a young demographic that injected new vitality into Fubon s credit card business. To cope with a constantly changing market, the Consumer Finance Group continues to form partnerships with the retailers that supply the bulk of card holders daily needs. One successful year-long campaign, focusing on restaurants, supermarkets, gas stations and personal care stores, led the market with special deals at 1,000 food and beverage outlets. It also generated considerable spending, with the value of card transactions nearly five times as high as a year earlier for momo shopping network cosmetics and 3.5 times as high at Wellcome and Jasons supermarkets. The Bank also actively intensified department store campaigns targeting peak spending periods, such as Mother s Day and anniversary sales. At the same time, merchant participation in our credit card installment payment program was expanded, and special promotions catering to important retailers, including home shopping networks, 3C vendors, discounters and online shops were launched, helping generate high fee income. As a result of these many strategies, card spending surpassed NT$13 billion in October and 2010, more than in any other single month periods in Fubon s history. Exploiting Synergies to Meet New Challenges The Consumer Finance Group is poised to embrace new opportunities in 2011 with great enthusiasm and strategies that accentuate our team s strengths. Fully committed to a customer-oriented philosophy and the dynamic spirit of the Fubon brand, the Group will continue to invest in product and service innovation to provide high value-added services to customers while also strengthening the business s foundation through enhancements in risk management. By diversifying product offerings, optimizing customer segmentation, expanding distribution channels, and better harnessing synergies, strong profit growth momentum and high asset productivity should be sustained. The mortgage division will continue to offer a full range of products that actively enhance the value-added of home loans while also cultivating an outstanding team and strong escrow officer channel to build an even more complete distribution network. The consumer credit division also plans to expand its customer base by strengthening the Fubon referral system, intensifying promotional campaigns, and exploiting the Group s CRM (Customer Relationship Management) system. The credit card division s marketing strategy will continue to target consumer distribution channels in 2011, with a particular commitment to expanding promotional tie-ins with leading retailers. At the same time, new marketing innovations that defy conventional wisdom are being introduced to offer differentiated services that tap into the spending potential of card holders. These initiatives should strengthen the Bank s brand advantage and attract a younger demographic, contributing to enhanced profitability.

34 A n n u a l R e p o r t Wealth Management Always Pursuing Improvement to Ensure Steady Growth Fubon s Wealth Management Group, consisting of Fubon Financial subsidiaries Taipei Fubon Bank, Fubon Securities, Fubon Asset Management, Fubon Investment Services, and Fubon Futures, offers cross-border services throughout Greater China and in the United States that are founded on Fubon s longstanding corporate values integrity, sincerity, professionalism and innovation. In the near future, we hope to deepen our presence in the domestic market and gradually complete our expansion into the Greater China region, providing great services to an even wider clientele. Comprehensive Development, Outstanding Results Taipei Fubon Bank enhances the performance of clients investment portfolios in many ways, including optimizing the currency allocation of their assets to diversify the risk of holding a single currency, and reassessing levels of product risk. To help clients manage risk, the Bank designed the innovative RAM (Risk Allocation Management) system, which can offer investors suggestions on asset allocation. The system quickly garnered international attention, earning Fubon Financial an

35 W e a l t h M a n a g e m e n t 3 3 IDC Financial Insights award for Innovation in Customer Risk Management. The Bank s dedication has also gained recognition in Taiwan, earning three 2010 wealth management awards from weekly magazine Business Today for Best Wealth Management, Best Risk Management, and Best Performance. Fubon Securities, which prides itself on its sophisticated management, efficiency enhancement, and risk control, primarily brokers trades on Taiwan s stock markets but is also involved in futures, options and offshore sub-brokerage services. Offering specialized, comprehensive, and sincere service of unrivaled quality, Fubon Securities always puts the client s interests first. It has been named by The Asset for the past two years running as the Best Brokerage House in Taiwan, the first and only general securities broker in Taiwan ever to earn the honor. On the asset management side, the assets in mutual funds run by Fubon Asset Management (FAM) grew 10.43% in 2010, to NT$88.9 billion at the end of year from NT$80.5 billion a year earlier. Among the funds, the Fubon Elite Fund was named the best one-year and three-year fund in the Domestic Mid/Small Cap Equity Fund category at the 2011 TFF-Bloomberg Best Fund Awards, and the best three-year fund for Equity Taiwan Small and Mid Caps at the 2011 Lipper Fund Awards. In a year when no entries made the grade for one-year, three-year and five-year funds among domestic equity value funds at the 2011 Best Fund Awards, the Fubon Value Fund was named best 10-year fund in the category. In 2010, FAM also developed rich additions to its overseas product line, launching brand new fund categories such as a global bond fund of

36 A n n u a l R e p o r t funds (the Fubon Yield Enrichment Fund of Funds) and a global bond fund (the Fubon Global Investment-grade Bond Fund). Among overseas funds represented in Taiwan by Fubon Investment Services, the GAM Star China Equity USD Acc Fund was named the best three-year foreign equity fund from Greater China at the 2010 TFF-Bloomberg Best Fund Awards and the best three-year fund in the China equity category at the 2010 Lipper Fund Awards. Fubon Futures continued to offer outstanding foreign and domestic options strategies and a complete service platform in 2010, but the year also saw a number of major breakthroughs the opening of the managed futures business, the publication of specialized options literature, and the launch of a large-scale customer loyalty promotion. These initiatives were all highly acclaimed by customers and resulted in substantial growth in Fubon Futures options market share. Quality Services, Satisfied Customers Catering to high-wealth customers who have at least NT$30 million with the Fubon Group, Fubon Private Banking offers each client total access to Fubon Financial s extensive range of financial services through a single experienced financial consultant. The approach has solidified the Private Banking division s client base and generated increased activity frequency. At the same time, cross-department cooperation and marketing campaigns have generated a steady flow of new high-wealth prospects. Because of the overall success of the program, in 2010 Fubon Financial was named by Asiamoney as Taiwan s Best Domestic Private Bank, and Taipei Fubon Bank was honored by The Asset as Best Private Bank in Taiwan. Taipei Fubon Bank has put a premium on optimizing service quality by strengthening the expertise and focus of our financial services associates. Moves to actively recruit top professionals in the field and institute an effective incentive system to retain talent have been complemented by rigorous training programs that enhance the competitiveness of our financial team. The training has emphasized five core areas: specialized product knowledge, financial planning, customer relationship management, business management, and legal compliance and ethics. To improve the efficiency of customer service and customer relations, the Bank has developed a real-time customer satisfaction and response system, helping strengthen service quality monitoring and customer loyalty. This passion for service earned the Bank first place in Next Magazine s Top Service Award for banking in Taiwan. Taiwan s securities market has seen many sudden transitions the popularization of investing and growth in financial awareness, the rise of the younger generation, the advance of technology, and changes in the legal environment that have transformed the industry and its client structure. To cope with these trends, Fubon Securities initiated a Seed Cultivation Project that nurtures skillful employees to better serve customers. Dedicated teams offer targeted investment products based on a customer segmentation strategy and enhance operational effectiveness. Customer-oriented and keen to build roots in communities, Fubon Securities has embarked on a program to renovate its branches and give them a fresh, consistent look, comfortable atmosphere, and dignified feeling. The campaign is being supported by promotions that encourage customers to open accounts and increase their transactions. This dedication to the customer was recognized in 2010, when Fubon Securities finished second in Business Today s Brand Appeal Survey and Brand Appeal among Businesspeople in the brokerage industry, two places higher than in those same categories in Total votes received rose 113%, with strong showings in the categories ease of placing orders, service quality and name recognition the major factor behind the improved performance.

37 W e a l t h M a n a g e m e n t 3 5 Highly Integrated e-commerce Platform Taipei Fubon Bank s online bank is geared to meeting customers needs, providing innovative and diversified online services with optimal convenience through a single sign-on. The platform pools banking, securities and insurance information, enabling customers to review their complete portfolio on demand. Its foreign exchange functions appeal to investors and generate greater online volume, while the use of efficient transaction procedures and user-friendly optimizes the online counter s functions. A mobile banking platform has also been launched in cooperation with affiliate Taiwan Mobile, providing value-added services, and its functions are constantly upgraded to enhance the convenience and diversity of services delivered to customers. A new electronic trading system called Fubon e01 and a mobile trading system called Fubon e-touch handle over 70% of Fubon Securities digital transactions, benefiting from a convenient interface and highly efficient functions. The mobile system has an online trading services network that is unrivaled in the industry and can be downloaded for use on Apple s iphone and ipad, Android and Java-enabled models, PDAs, and Blackberry. A total of NT$1.34 trillion in trades were made on the Fubon Securities e-commerce platform in 2010, 29% higher than in 2009, the highest rate of growth of any major securities broker in Taiwan. Solidifying Our Presence in China and Global Markets Fubon s Wealth Management Group solidified its presence in China s market in Fubon Securities currently has representative offices in Shanghai and Xiamen, and another office in Beijing is in the preparatory phase. We have also made a concerted effort to maintain relationships with Chinese brokerage houses and search for niches that can be jointly exploited. Going forward, we anticipate that our extensive experience in brokerage, underwriting, securities lending and margin financing, and futures and option trading will help secure a worthwhile alliance with Chinese securities firms and create a breakthrough in the industry. Our main focus in 2011 will be developing new overseas products, including theme funds (Fubon Agribusiness Equity Fund) and other equity products (related, for example, to emerging Asia). Fubon Asset Management expects to launch new overseas ETF instruments (such as China-related ETFs and commodity ETFs) and hopes to gain recognition as Taiwan s leader in both active and passive management funds. Fubon Investment Services will continue to provide timely analysis and further solidify its presence in the financial services industry. As the Fubon Group strengthens its foothold in the Greater China market, Fubon Investment Services will grow stronger with it and emerge as one of the leading research groups in the region, helping elevate Fubon s professional image and increase customer returns. The 2010 Dialogue between Investment Experts and Money Managers investor conference. Taipei Fubon Bank receives three wealth management awards from Business Today in 2010.

38 A n n u a l R e p o r t Investment Management Sound Investing, Steady Growth The Investment Management Group draws on the expertise, resources and competitive advantages of Fubon Financial s subsidiaries Fubon Life, Fubon Insurance, Fubon Financial Holding Venture Capital and Fubon Venture Capital Consulting to plan and execute investment strategies tailored to each Fubon subsidiary s specific needs. Econometric models and other special operating systems are used to effectively diversify and manage different types of risk, helping optimize investment return, diversification and risk and contributing to the stability of the Group s longterm finances and sustainable operations. Fubon Life and Fubon Insurance Investment Income Sets Record High Fubon Life had another banner year managing its investments in It had NT$1.43 trillion in assets under management at the end of the year, up 24% from a year earlier, and investment income was a record high of NT$49.1 billion, a rate of return of 3.94%. Assets managed by Fubon Insurance also grew steadily to NT$59.2 billion as of the end of After many years of strong performances, Fubon Insurance and Fubon Life have assumed

39 I n v e s t m e n t M a n a g e m e n t 3 7 leadership positions in the market and within the industry. Their diversified product mixes and marketing channels have generated large, steady cash flows. These funds provide a solid foundation on which the Investment Management Group can exploit its expertise and create a diverse range of asset liability management-driven portfolios that are tailored to the prevailing economic environment and corporate goals. At the same time, fluctuations in interest and exchange rates, credit conditions and the overall economic and political environment, along with Fubon s internal early-warning risk control system, are closely monitored, enabling the Group to adjust portfolio allocations and investment strategies in a timely, flexible manner. These initiatives strengthen asset utilization and effectively diversify investment risk, ensuring that Fubon Insurance and Fubon Life can meet their commit- ments to their customers. In CommonWealth Magazine s 2010 Most Admired Company Survey, Fubon Life was again recognized as the most admired company in the insurance sector and also ranked atop the industry in operating performance and long-term investment, two of the 10 criteria considered in the survey. The result highlighted the merits of Fubon Life s strategies emphasizing asset-liability management and steady diversification. These strategies have helped the company s financial investment performance consistently outpace the industry and earned the recognition of business and academic circles in successive annual evaluations. Financial Outlook and Challenges Though the global economy has emerged from the depths of the financial crisis, the recovery

40 A n n u a l R e p o r t still faces considerable challenges. Growing consumption demand and monetary policy easing by central banks around the world are fueling dramatic increases in international commodity prices. Rapidly growing emerging economies are attracting large flows of hot money and face inflation and asset-bubble threats. Concerns persist over European sovereign debt. These trends, along with political upheaval in northern Africa and the Middle East, are all variables that could hinder or derail continued economic growth. Despite these potential roadblocks, the global economy should grow moderately in 2011 amid a general sense of cautious optimism. Taiwan benefited from the worldwide economic recovery, posting double-digit growth in International trade rebounded strongly, and rising employment and revitalized financial markets fueled a rise in domestic demand. In the coming year, external demand, including trade with China, will likely remain strong, and increasing corporate profits should further boost employment and consumption, leading to moderate economic expansion. But a number of factors exist that could affect domestic growth in the second half of the year. The appreciation of the Taiwan dollar and rises in commodity prices could hurt corporate profits and consumption. In addition, the central bank could come under pressure to rein in commodity and housing prices, and the timing and extent of adjustments in monetary policy bear watching. The financial investment environment should also steadily improve in 2011 but faces hidden challenges. Growth momentum in many countries remains strong and the recovery has clearly taken root, but the uncertainty created by potential commodity and asset bubbles, credit volatility and localized political turmoil is casting a shadow over financial markets, testing the ability of investment institutions to read global and political economic trends. In this tricky environment, the investment strategies of Fubon Insurance and Fubon Life in 2011 will put a premium on asset and liability management through greater diversification of domestic and foreign fixed-income assets and strengthened foreign currency hedging, particularly in dealing with the relative rise of the Taiwan dollar. Increasing holdings of blue-chip stocks with growth potential and strong operating performances will also be emphasized to capitalize on sustained economic growth while ensuring long-term asset security and investment performance. Direct Investment Unearthing New Profit Opportunities Our direct investment division creates new promising enterprises through joint ventures or invests in companies that have the potential to be consistently profitable. Our main investment targets include: PDR % 1.85 % % 3 PDR % 2.10 % % 6 PDR % 2.10 %

41 I n v e s t m e n t M a n a g e m e n t 3 9 Dignitaries gather at the groundbreaking ceremony for Fubon Life s office/hotel complex in Taipei s Xinyi district. From left to right: International Engineering & Construction Corporation Chairman Chih-fan I, Fubon Life Senior Vice President Victor Ma, Fubon Land Chairman George K.C. Liu, My Humble House Group s Chen-yang Tsai, Fubon Multimedia Technology Chairman Howard Lin, Fubon Life Business Consultant Kenneth Shih, Fubon Life Chairman Richard M. Tsai, Fubon Life President Peng-yuan Cheng, My Humble House Hospitality Management Consulting Co. Ltd, Chairman Benny Tsai, and Artech Architects Kris Yao. (1) emerging high-tech industries, such as the information technology and optoelectronics sectors; (2) emerging sectors promoted by the government, such as green energy, digital media and biotechnology; (3) large-scale government projects including infrastructure; (4) emerging channel sales businesses; and (5) financial services-related enterprises. As of the end of 2010, direct investment totaled NT$8.403 billion. Of that, NT$3.523 billion was invested in infrastructure, NT$1.632 billion in digital media and channel sales businesses, NT$328 million in biotechnology, NT$314 million in environmental engineering companies, NT$176 million in the IT/high-tech sector, NT$980 million in financial service-related enterprises, and NT$1.45 billion in other venture capital sectors. Though many of the strategies pursued in 2010 will be continued this year, more initiative will be taken to expand investment in Taiwanese companies, especially those involved in sectors that the government plans to nurture into future stars. Investment will be primarily directed toward the biotechnology, digital media and service sectors, and efforts will also be made to participate in national infrastructure and other utility projects. The direct investment division also hopes to capitalize on the campaign to encourage Taiwaneseinvested offshore enterprises to list in Taiwan. Among the potential investment targets will be companies with economies of scale and high profit and growth potential that plan to return to Taiwan to set up operations headquarters.

42 A n n u a l R e p o r t Insurance Pursuing Excellence in the Insurance Field Fubon Insurance Fubon Insurance has consistently satisfied customers and earned their loyalty by adhering to the Fubon Group s core values integrity, sincerity, professionalism, and innovation resulting in the highest market share in the industry year after year, insurance divisions at the top of their fields, and regularly outstanding performances in the underwriting market. In 2010, Fubon Insurance was voted the Best Insurance Company of the Year for the 10th consecutive year in a survey by Risk Management, Insurance and Finance magazine and ranked first in five key indicators Name Recognition, Corporate Image, Claims Service, Professionalism, and Most Recommended. The results confirmed that Fubon Insurance is the partner of choice for Taiwan s consumers. Robust Growth through the Pursuit of Excellence The third phase of deregulation of premium rates in Taiwan s insurance market formally entered its second year in 2010, and competition remained intense. Fubon Insurance kept its edge with customers, however, through the use of flexible product marketing and distribution strategies and by offering more comprehensive risk control planning and related

43 I n s u r a n c e 4 1 services. Direct written premium grew 4.1% in 2010 to NT$22.17 billion, representing a 21.1% market share that led the industry for the 29th consecutive year. Xiamen Subsidiary Latest Step in Overseas Expansion Fubon Insurance has 73 branches and liaison offices in Taiwan and continues to make further inroads abroad. Our subsidiary in Xiamen, China formally began operations in November 2010, and our Vietnam subsidiary opened a branch in Binh Duong, to complement its headquarters in Ho Chi Minh City and branch in Hanoi. We also have an insurance broker in Thailand, representative offices in Beijing, Shanghai, and the Philippines, and liaison offices in Malaysia and Indonesia. These moves reflect the need to change with the times and extend our reach, not only so that we can offer more customers expert protection and services but also to promote our international vision and development. Our growth overseas has not distracted us from remaining innovative at home. Fubon Insurance continues to roll out products in tune with the pulse of the market and has actively developed a diversified marketing cross-selling system, giving consumers more personal and wealth protection planning options than ever before and plenty of ways to access them. By extending our presence overseas and innovating at home, Fubon Insurance continues to strive toward the goal of giving even more consumers blanket protection with an unparalleled range of insurance services. Constantly Innovating to Satisfy Customers Fubon Insurance has relied on a sound financial structure and innovative services to offer an unrivaled product range, while remaining fully dedicated to protecting the property and well-being of the general public, families and businesses. Our Loss Control Department offers a number of specialized services to

44 A n n u a l R e p o r t Fubon Insurance s expertise has earned many awards at home and abroad. Ribbon-cutting ceremony for the opening of Fubon House. corporate clients, such as the Steam Explosion Risk Quantification System, Earthquake Risk Evaluation System, and Typhoon Flooding Assessment System, that provide complete solutions to risk management. Guided by our consumer service mantra heartfelt service worth trusting, Fubon Insurance offers similarly innovative and attentive services to individuals and households, including 24/7 Accident Handling, On-site Arrival Within 30 Minutes, Text Message Claims Notification, and Instant Micro-claim Reimbursement. All of these services were unprecedented in the industry when first introduced. From enhanced service quality and an expanded range of services, to top-notch products and stringent risk management, Fubon Insurance has proved worthy of consumers trust. Our commitment to meticulous service has guaranteed Fubon Insurance s reputation and been instrumental in sustaining our leadership in the industry and preserving our substantial competitive edge. This pursuit of excellence was recognized by corporate customers and society as a whole at the 2010 Faith, Hope, and Love Awards of Insurance, where Fubon Insurance won the Distinguished Profession Award for Non-Life Insurance Companies, Distinguished Policy Designer Award for Non-life Insurance, Distinguished Contribution Award for Insurance Education, and Distinguished Representative Office Award for Non-life Insurance. Looking to build on its outstanding performance of the past 50 years, Fubon Insurance will persevere in its never-ending struggle for perfection to ensure the company s sustainable operations over the next half-century. Fubon Life In 2010, Fubon Life developed growth momentum by fully exploiting the synergies of its merger with ING Life and took advantage of its outstanding team and deep resources to deliver outstanding results. We also actively engaged in public welfare activities to meet our corporate social responsibility. Because of these efforts, Fubon Life once again ranked at the top of Taiwan s insurance industry in CommonWealth Magazine s Most Admired Company survey. Initiatives to satisfy customers far-ranging financial services needs and further evolve already top-notch services also earned Fubon Life an Outstanding Service Award from Global Views Monthly. Buoyed by this recognition from experts and customers, Fubon Life continues to devise forward-looking strategies in advancing closer to the goal of becoming a top Asian life insurance brand. Merger Synergies Generate Industry-leading Results In June 2010, Fubon Life celebrated the first anniversary of its merger with ING Life, and the synergies created by the merger became more evident. First year premium rose 50.8% year-on-year to NT$310.2 billion, and market share grew to 26.7%

45 I n s u r a n c e 4 3 from 22.2% in 2009, the second highest in the industry. After-tax income was NT$8.62 billion, accounting for 43% of Fubon Financial s overall profits, highlighting Fubon Life s importance as a key engine of the Fubon Group s profitability. Fubon Life continued to capitalize on distribution synergies by balancing the development of sales, banking, and other diverse marketing channels. As part of a new sales system launched in July 2010, sales agents are encouraged to start their careers as heads of correspondence offices under a management training program that stresses entrepreneurship and promotes organizational development. The bancassurance business grew stronger through targeted marketing strategies that enhanced performance, while other alternate channels were created to cater to innovative operating models, further stimulating sales growth. At the same time, Fubon Life actively drew on Fubon Financial s extensive resources to offer customers more convenient, differentiated services that are unrivaled in the industry.. Going Local with Innovative Products and Services Fubon Life s product line has stressed broad-based development and encouraged members of society to develop a comprehensive foolproof plan against risk, especially with the aging of Taiwan s population and the persistently low amount spent on insurance in recent years. Aside from Taiwan-dollar and foreign-currency denominated whole life insurance policies and critical illness insurance, new products, such as surgery insurance and women s insurance, have also been introduced, and micro life insurance policies were created to care for economically disadvantaged households around the country. Strongly customer-oriented, Fubon Life puts a premium on professional, innovative, and top-notch service quality. In 2010, a Fubon House concept offering one-stop shopping service was launched, and it successfully harnessed company resources and enhanced operational performance to offer customers and sales agents alike more diversified and efficient service. In 2011, the goals for the Fubon House project include broadening the service center s functions and offering even more specialized services, while also, in the spirit of localizing service, making Fubon House the key link between Fubon representatives and local communities. In support of an ongoing commitment to public welfare activities, Fubon Life will continue to serve as the title sponsor of the Fubon Taipei Marathon, mobilizing thousands of people to use their feet in raising funds for charity. Forging a New Path as a Regional Life Insurer In line with the Fubon Group s expansion strategy, Fubon Life continues to actively assess opportunities in high potential overseas markets, particularly in China and Southeast Asia. Inroads were finally made into Vietnam s market when subsidiary Fubon Life Insurance (Vietnam) Co., Ltd. opened in March 2011, formally turning the company into a regional life insurer. To develop a foothold in China, Fubon Life signed a letter of intent with Nanjing Zijin Investment Co. in 2010 to launch a life insurance joint venture, the first such deal following the signing of the Taiwan-China Economic Cooperation Framework Agreement (ECFA). In February 2011, Fubon Life joined with Fubon Insurance in concluding a deal with Nanjing Zijin to set up Fubon Zijin Life in Nanjing. Fubon Life is poised to pursue new opportunities in 2011 based on a steady, pragmatic approach and strict risk management, while offering customers unrivaled comprehensive financial and insurance planning with the help of specialized, innovative, and tailored services. As the Fubon Group celebrates its 50th anniversary, Fubon Life will draw on the spirit of the Group s Transcending 50 Challenging 100 campaign to transcend past achievements and actively support charity drives. Every effort will be made to become the best possible corporate citizen and the life insurance partner of choice among local consumers, creating a win-win-win situation for our customers, our company and our shareholders.

46 A n n u a l R e p o r t Fubon Bank (Hong Kong) Charting a Steady Course In the wake of the downturn in 2009, the global economy in 2010 staged a gradual recovery. The relatively strong growth sustained by the Mainland economy and reviving global trade flows continued to benefit Hong Kong. Global investors interest in Asia-Pacific economies and markets was evident from the sizeable capital inflows, which raised the risks of inflation and asset bubbles. The second round of quantitative easing by the U.S. further raised these risks and might lead to sharper monetary tightening by central banks. Fubon Bank (Hong Kong) Limited ( the Bank ) started the year with caution and adopted a growth-yet-prudent strategy that we believed would better place us to weather the risks, take headwinds in our stride and still deliver satisfactory performance. In 2010, we focused on the effective management of capital, on improving our risk profile further and on the disciplined execution of our strategy of establishing our local franchise. Costs remained well managed and loan impairments declined significantly. Building on the inherent strengths of our parent company, Fubon Financial

47 F u b o n B a n k ( H o n g K o n g ) 4 5 Holding Co., Ltd. ( Fubon Financial ), enabled us to realize synergies that led to increased economies of scale, faster market intelligence, enhanced risk management and improved cost control. The Over Tenfold Increase in Earnings was testimony to the Bank delivering on its Growth-yet-Prudent Strategy During 2010 we made progress in improving our financial performance. We generated a net profit of HK$266 million, representing a more than tenfold increase from the HK$23 million reported in Our success stemmed from enhanced risk management and prudent financial planning, as well as focusing on our core businesses and our strong client relationships. Amid more stable market conditions and our efforts to manage credit risk, impairment losses on advances to customers and available-for-sale securities reduced substantially year-on-year. We also saw higher fee-based revenues, especially from credit-related services and the sale of unit trust and insurance products, on the back of an improved economy and more positive investor sentiment. Earnings per share were at Hong Kong cents after accounting for the dividend payment for preference shares. Gross interest income declined 23% to HK$1,196 million for 2010 whereas gross interest expense decreased only 17% to HK$344 million over the corresponding period. As a result, net interest income decreased by HK$290 million or 25% to HK$852 million. The decline in net interest income was attributed to lower average interest-earning assets, resulting from the gradual depletion of the high-yield hire purchase portfolio and the Bank taking a more cautious stance in

48 A n n u a l R e p o r t loan underwriting during the first half of Fierce price competition among peers for lending (especially in the residential mortgage business) and the switch from higher yield prime-based loans to HIBOR-based loans under the low interest rate environment had adversely impacted the Bank s loan yield in Moreover, credit spread tightening since the fourth quarter of 2009 caused assets to be priced at lower spreads. At the same time competition for deposits drove up interest paid. As a result, effective net interest margin ( NIM ) decreased by 38 bps to 1.56% from 1.94% for Minibonds from customers, operating expenses were down 10% or HK$98 million year-on-year to HK$856 million for Nevertheless, the cost-to-income ratio increased to 75.2% for 2010, compared with 67.2% for 2009 as a result of falling net interest income which dragged down operating income by 20%. We will continue to build new revenue streams, rationalize our operating expenses level and enhance our operating leverage in order to improve the cost-to-income ratio. Operating profits before gains and impairment losses decreased 40% or HK$184 million to HK$282 million compared with HK$466 million in Higher Fee-based Revenues on the back of an Improved Economy and Expanded Product Range Net fee and commission income increased 22% or HK$47 million to HK$257 million in 2010, underpinned by higher business volumes across consumer finance, wealth management and corporate banking segments. Credit-related fees and commissions increased HK$25 million, credit card related fees & commission income increased HK$11 million, and commission income derived from sales of insurance products and unit trust products increased HK$25 million. Our strategic partnership with China Life Insurance (Overseas) Company Limited, which gave us the exclusive distribution rights on a number of their products, contributed a good portion of our insurance premium income. Credit spread tightening continued to affect the fair value of financial instruments designated at fair value through profit or loss, which resulted in decrease in other operating income. Including the revaluation loss of HK$13.7 million on the CDO portfolio in 2010 (HK$0.7 million in 2009), total non-interest income, included net fee and commission income and other operating income, recorded a 3% increase or HK$8 million to HK$286 million in With proactive cost containment initiatives and less cost incurred for the repurchase of Lehman Strengthened Risk Management successfully enhanced Asset Quality With lower impairment losses on advances to customers and available-for-sale securities, total impairment losses registered a year-on-year decrease of 91% or HK$500 million to HK$47 million for Of which, net charge for impairment losses on advances to customers dropped 98% or HK$475 million to HK$10 million for 2010, mostly resulting from lower individual impairment losses charged on SME and hire purchase loans. In addition, improved credit quality in commercial lending led to the release of collective impairment loss in 2010 compared to a charge for collective impairment loss in With continual improvement in asset quality in 2010, the impaired loans ratio further decreased to 0.66% as of (1.72% as of 30 June 2010, 1.78% as of ). The coverage of impaired loans improved from 87% at to 95% at 30 June 2010 and further to 96% at Benefiting from the strong performance of Xiamen Bank, the Bank s share of profits recorded an increase of 119% to HK$31 million, as compared with HK$14 million recognized for After accounting for impairment charges, other gains and tax charge, profits after taxation amounted to HK$266 million, representing a more than tenfold

49 F u b o n B a n k ( H o n g K o n g ) 4 7 Our experienced financial specialists provide customers with a wide range of wealth management services that best suit their specific investment needs and risk appetite. The official opening of the new Wanchai Branch took place in August to provide customers in the Wanchai District with a full array of high quality banking services. increase from HK$23 million for Return on average assets and return on average equity increased from 0.04% to 0.43% and from 0.48% to 5.31% respectively when compared with Total assets as at were at HK$61.8 billion, an increase of HK$0.8 billion from HK$61.0 billion as at Customer deposits grew by HK$2.8 billion or 6% in the second half of 2010 to HK$46.0 billion as at In terms of loan growth, during the first half of 2010, the Bank maintained a prudent approach to credit underwriting and acquiring new loans in light of uncertainties in external markets. We saw a contraction in the first half, followed by a moderate growth of 3.5% in the second half as the economy gradually showed signs of stable recovery. Gross loans were maintained at HK$29.1 billion, a similar level to that at the end of 2009 whereas net loans increased 1% or HK$0.3 billion to HK$28.9 billion as at from the 2009 year-end balance of HK$28.6 billion. The Issuance of Subordinated Debt further boosted the Bank s Strong Capitalization On 30 November 2010, the Bank successfully completed the issuance of US$200 million 10-year subordinated debt for replenishing the outstanding US$200 million subordinated debt callable in April The notes, rated BBB by Standard & Poor s, bear a fixed coupon rate of 6.125% per annum payable semi-annually and qualify as the Bank s Tier 2 capital. The Bank s capital and liquidity positions remained strong. The consolidated capital adequacy ratio was 18.23% (17.18% at 2009 year-end) at the end of 2010 and average liquidity ratio for 2010 was at 51.42%. A Solid Platform to achieve Steady Growth Going forward, we will build on the achievements of 2010 and continue to establish our local franchise, broaden our customer base and expand our product and service offering to bring in additional revenues. To strengthen our foothold in a very competitive environment in Hong Kong, we will focus on attracting deposits while steadily growing the loan book, and continue to invest in IT infrastructure to improve customer service and product innovation while enhancing operational efficiency. We will leverage business opportunities arising from the Mainland government s relaxation of cross-boundary RMB transactions. The policies, systems and mechanisms that we have put in place during the downturn for boosting our risk management and internal control capabilities have created a solid platform for us to move our business ahead and to achieve steady growth.

50

51 Spreading Love One Step at a Time Fubon Charity Foundation Fubon Cultural & Educational Foundation Fubon Art Foundation Taipei Fubon Bank Charity Foundation Proud of its role as an engine of society, the Fubon Group is committed to being a good corporate citizen and fulfilling its social responsibility. Fubon Financial has worked through its four foundations over the years to engage in a wide variety of social welfare activities, from helping the underprivileged and deepening cultural education to injecting art into daily life. That devotion to service and giving back remains unwavering and will inspire an even better society in the future.

52 5 0 Fubon Charity Foundation Founded in 1988, the Fubon Charity Foundation remains passionate about helping underprivileged members of society. Our main initiatives involve keeping children in school through the Making Friends with Love campaign, managing the Fubon Volunteer Association, and mobilizing emergency rescue assistance, disaster relief, and medical subsidies. Over the past 22 years, the Fubon Charity Foundation has left its mark in every corner of society and emerged as an important platform through which the Fubon Group manifests its corporate social responsibility and desire to give back to local communities. The Making Friends with Love campaign, which has won widespread acclaim over the years, combines resources raised from the public and Fubon employees to help children from economically disadvantaged families continue their education. In 2010, NT$122,064,600 was raised, helping 16,953 students stay in school. Overall, the program has helped 95,659 children since its inception. Other major initiatives in 2010 were as follows: Doing Good Deeds Apple Baumkuchen Campaign: Joined with baked goods vendor PaiPai Enterprise and celebrity Yu Mei-ren to sell out the campaign s products within 20 days, raising NT$2.5 million for 10 elementary schools in Hualien and Taitung counties. Fubon Life Motivational Meeting Campaign: Raised NT$6,641,000. Secondhand Goods for Love Campaign: Raised NT$4,633,735. Fubon Celebrity Charity Auction and FED Women s Shoes campaigns: Raised a combined NT$ 573,320. Love through Happiness One-time Donation Campaign: Raised NT$3,696,319. Exchanging Points for Love Campaign: In association with Taipei Fubon Bank, raised NT$3,254,550 from bank s card holders; money was donated to 12 nonprofit social welfare groups. The Fubon Volunteer Association was founded in 2003 to encourage the participation of members of the Fubon family in social welfare activities. Since then, 16 branch associations have been established to get more people involved and convey the Fubon Group s determination to give back to society and commitment to the public. In 2010, the association organized two blood donation week drives, held an event for visually challenged students, participated in a flea market to raise funds, and arranged for students to visit the Orbis flying eye hospital. It also helped Fubon s four major foundations put together special projects, such as the Making Friends with Love Happy Reunion and 1919 Love to Walk events. For the year, Fubon volunteers contributed 5,279 service hours. The Emergency Relief Fund has supported many initiatives over the years (individual financial assistance, medical fund accounts, internal reporting systems for Fubon s emergency relief groups, cooperative projects, and the 921 education fund) to offer financial support to individuals and families facing emergencies. The Fund has relied on a referral network ever since the Foundation was created to build a personal emergency reporting system that offers to those in need links to resources available through government agencies and private organizations. The network also arranges for Fubon volunteers to visit individuals or families facing emergencies, ensuring that Fubon s commitment to give back to society and serve disadvantaged groups extends to every corner of Taiwan. In 2010, the Fund contributed NT$17,216,138 to assist in 3,782 cases. Typhoon Morakot post-disaster reconstruction initiatives (bridge construction and repair, emergency equipment procurement, public welfare ambassador visits, scholarships for orphans, and disaster-area school fee subsidies) continue to this day, nearly two years after the storm devastated many parts of southern Taiwan in August In 2010, the Foundation contributed NT$26,113,798 to the reconstruction effort. Looking ahead, the Fubon Charity Foundation will uphold its commitment to care for the underprivileged and remain a positive force in society. By mobilizing resources from both within and outside the Fubon Group and acting as the strongest source of support for disadvantaged groups, the Foundation will continue to embody the Fubon Group s mission as a corporate citizen. Well-known TV host Yu Mei-ren serves as a spokeswoman for the Doing Good Deeds campaign. People gather in Making Friends with Love reunion at Wenshan Farm. The Sending Love to Alishan campaign donated an ambulance and emergency first-aid kits.

53 5 1 Fubon Cultural & Educational Foundation The Fubon Cultural & Educational Foundation has three fundamental missions: helping teenagers reach their potential, strengthening the bonds between parents and their children and connecting Taiwan with the rest of the world. As we celebrated our 20th anniversary in 2010, our dedication to those causes remained unwavering, but we also gave greater expression to our three-pronged Young Voice, Young Life, Young Career campaign. Young Voice refers to cultivating teenagers media literacy not only by encouraging them to actively pursue information but by helping them use media discriminately. Young Life emphasizes life education to help teenagers build self-confidence, get to know themselves better and love life. Young Career challenges teenagers to use their innate talent. The idea is to help them understand their interests and strengths from the time they are young so that they can find their life s vocation as early as possible. As this education program takes root, it will enhance the new competitiveness of Taiwan s next generation. Remembering the old friends who have supported and accompanied us on our journey over the past two decades, we interviewed 12 celebrity friends and had them share personal stories on their relationships with their parents and children. The interviews were compiled in a book, called Listening to You, Supporting You, that urges parents to listen and support their children and vice-versa. The book was sold exclusively on the Fubon Group s momo shopping channel, with the proceeds going to the Early Intervention in Remote Areas program launched jointly in 2010 by the Foundation and the Syin-Lu Social Welfare Foundation. The initiative mobilizes resources to help children living in remote areas who have development delays and makes sure that they receive early intervention services. The Foundation has also expanded and strengthened its media literacy website launched in 2005 ( and organized the annual Young Voice Awards, which encourage students to show concern for those around them by observing and recording their daily lives based on a specific theme. On Universal Children s Day on Nov. 20, 2010, U.S.-based nonprofit organization TED, described by some as the Harvard of the Internet, launched the first TEDxYouth Day to inspire curiosity and ignite new ideas among young people. Over a 24-hour period, 60 Youth Day events were held in 24 countries, with the Foundation responsible for the event in Taipei. Seven young Taiwanese were invited to share their life experiences based on the theme The World Needs Me to.. The live event was broadcast over the Internet, giving the world s youth a chance to see how their Taiwanese peers embrace their youth, creating a heartwarming scene. We also invited three international speakers to the Taipei venue, broadening the international horizons of the audience. As the collective memory of the August 2009 Typhoon Morakot began fading, the Fubon Cultural & Educational Foundation continued in 2010 to call attention to the psychological impact the devastating storm had on children by inviting five young directors to tell the story of how children were doing in four disaster areas. The result was the documentary Bye-Bye Morakot, which was nominated for an NHK Mini-mini Movie Award in Japan and an award at the Chicago International Children s Film Festival. The film was also adopted as a life and environmental education material, giving teachers and students a useful classroom tool that could help advance learning. To raise awareness of various disaster-related issues, such as post-disaster mental rehabilitation, environmental protection in daily life, and dealing properly with similar contingencies, the Foundation developed dramas and interactive plays tailored to these themes to be performed on tours of schools in disaster areas and potential landslide sites in conjunction with our mobile library. The Foundation also extended its caring reach to the international community. When a magnitude 7.0 earthquake rocked Haiti on Jan. 12, 2010, we immediately joined in the Ministry of Foreign Affairs relief effort, contributing medicine, food and other material assistance to disaster areas in the Caribbean country. The Foundation also continued to sponsor children in Sri Lanka who were orphaned during a massive tsunami that struck the country in late 2004 and to work with Doctors of the World (Médecins du Monde) to provide essential medical assistance and protection to street children in the Democratic Republic of the Congo capital of Kinshasa. A book celebrating the Foundation s 20th anniversary urges parents and children to listen to and support each other. A scene from the Bye Bye Morakot campus tour. Children take advantage of the Pu Pu mobile library.

54 5 2 Fubon Art Foundation Let Love and Sharing Guide us into the Future As the ROC approaches its centenary, international trends in culture and creative industry have caused us to look anew at our vision for the future. As an influential enterprise foundation and corporate citizen, it is extremely important that Fubon Art Foundation considers carefully the focus and direction of its work. Taiwan has a rich and diverse culture and how best to showcase that to the world has been at the very core of our mission over the years. To that end, Everything starts with sharing is the founding spirit on which the Foundation was created, but today that spirit also embraces the idea of love. We firmly believe that sharing and love are just what we need to guide us into the future. Small Things in Daily Life Hold the Key to the Future The Fubon Forum is already in its 11th year and as an extension of last year s discourse on soft power, this year s focus will be on the more introspective subject of upward motion. This will examine the colorful nature of life aesthetics in the hope of finding self confidence and encouragement through learning, whilst also proposing a sense of direction and focus in life. As the ROC celebrates its 100th anniversary we need to build on the past and look to the future, questioning everything we know about the place where we were born and grew up. Taiwanese society has been shaped by a century of beautiful cultural expressions, and as such we need to review history and reinterpret it, starting with every day life, as we search for the collective memories of Taiwanese people. Nearly 100 lectures have provided a prominent stage for the insight and wisdom of various experts, one that has not only helped to recharge our batteries, but also given us a much better understanding of the environment and culture in which we grew up. Climbing a Landmark Very Fun Park Reaches New Heights For Fubon Art Foundation, 2010 was a year in which we sought to depart from our path of steady growth. The Foundation has long promoted wall-less museums and the Very Fun Park Eastern Taipei Contemporary Art exhibition involves using the public space in businesses in the Eastern District of Taipei City and thereby making art an integral part of the local community. In this way, we have been able to recommend the diversity and beauty of art in the most direct way possible, making life more interesting and in the process giving the city a makeover. Ever since Taipei City Government s Urban Development Bureau started to present its award for Outstanding Enterprise Contribution to the Urban Landscape at the end of 2006, Fubon Art Foundation has worked to infuse the environment in which we all live with art. One product of this approach has been the annual promotion of new artistic stylings during the summer in Taipei City, creating opportunities for people to encounter new artists and international works of art. With more people than ever before moving back and forth along the route of the exhibition, city life has been revitalized and the idea of wall-less museums finally come to fruition as part of our daily lives. In addition to deepening the collective memory of Taipei residents, this event has also breathed new life into the city. Perhaps the single most significant event this year was the way in which Very Fun Park made its first appearance at Taipei 101, formerly the tallest building in the world. For the displays promoted by Fubon Art Foundation, this coming together of local and overseas artists symbolized the way in which we have metaphorically climbed to the highest point in Taipei City, a new milestone for the Very Fun Park project. Practical Art: Learning About Aesthetics and Innovation from Life The excellent response from both customers and colleagues to artistic products produced by Fubon Art Foundation and handed out at the annual shareholders meeting in 2003 was a major motivation behind our decision to try its hand at selling its own artistic products to a wider audience. During this period, the recommendations of the Foundation ensured this application of art and the artists involved became better known, creating in the process unique corporate gifts. Once we obtained the trust of the participating artists through ingenious designs and the right remuneration, this project proved a huge success. It also pointed to a new possible direction of serving enterprises, which has been focused on even more effectively this year with a planned Fubon Products Festival, presenting a forum for artistic and creative industries to display their work. When we appreciate that such great works are the result of inspiration from life, the products clearly satisfy a need in life, and by using them we experience first-hand the truly moving sentimentality and beauty of life. Love House, a work by Leland Lee, on view in Taipei 101 as part of Very Fun Park 2010 The opening of Very Fun Park 2010 Cloud Gate Dance Theater founder Lin Hwai-min shares his spirit at a Fubon Forum lecture.

55 5 3 Taipei Fubon Bank Charity Foundation Since its inception in 2003, the Taipei Fubon Bank Charity Foundation has been deeply committed to caring for the elderly, the physically and mentally challenged, and the economically disadvantaged and to supporting social welfare activities, putting a premium on using resources where they are most needed. In 2010, we added three more day care centers for senior citizens, one in Nantou County and two in Pingtung County, bringing the total number in Taiwan to 11. As with previous centers, the new units were located in remote areas, but they were also specifically chosen to meet the needs of seniors affected by the devastation caused by Typhoon Morakot in August 2009 and help keep them healthy. The Foundation also continued to work with the Taitung branch of Mackay Memorial Hospital to deliver meals on weekends and holidays to seniors living alone on the outlying Green and Orchard islands. The Foundation s Giving Family Caregivers a Breather excursions had become so popular since being launched in 2008 that the program was expanded to 23 trips around Taiwan in 2010, benefiting 703 families. Lectures on relaxing and staying healthy were arranged as part of the outings to remind caregivers not to overlook taking care of themselves as they take care of others. Finally, the Happy Trains program held every year to mark the Double Ninth Festival (a traditional festival that honors the elderly) once again brought joy to senior citizens. The 10 excursions organized for the day drew the participation of 507 seniors. After a year of planning, the Daring to Dream concert featuring previous winners of the Taipei Fubon Bank Artistic Award for Disabled Talents and the Evergreen Symphony Orchestra was staged in September. The four young musicians saw their dreams take off and delivered performances that moved the 1,600 members of the audience. Meanwhile, two artistic award winners were recommended to represent Taiwan in a exhibition at the closing ceremony for the Life & Sunshine Pavilion at the 2010 Shanghai Expo, giving Taiwan s artists with disabilities a chance to show their talents on an international stage. In addition, the Foundation-sponsored band formed by the winners of past awards performed 32 concerts in 2010 at venues that Included National Taiwan University Hospital s 115th anniversary ceremony, special education schools, select high schools and vocational schools, the Taipei Lantern Festival, the Kaohsiung Social Education Center, and Nanhua University, which has a relatively high number of students with disabilities. The performances drove home to audiences the concepts of transcending barriers and showing unlimited courage. Helping the economically disadvantaged escape poverty. The Foundation has cooperated with the Taipei City, New Taipei City and Kaohsiung governments on poverty-fighting projects, focusing on more remote areas that lack resources. We also continue to partner with the Pingtung County government on the Poverty-busting Savings Plan, which targets the second generations of the county s low-income households. Savings are matched dollar for dollar and courses are provided to help participants enhance their value and competitiveness. The hope is that the program will be extended to Taitung and Hualien counties and Chiayi City in Also, the Foundation organizes reunions of graduates of the New Taipei City Career Development version of the poverty-fighting savings plan, helping build a mutual-help network. For the past five years, the Foundation Emergency has co-organized the 1919 Love Movement, Fubon Emergency Household Relief Plan with the Chinese Christian Relief Association. Each year, the campaign offers comfort and emergency assistance to 1,000 families that have fallen on hard times because of unforeseen circumstances, and it also provides real-time relief during major natural disasters. The Foundation continued to care for victims of Typhoon Morakot in 2010, especially those with disabilities, by assisting local organizations in making homes in disaster areas barrier-free. We also joined with Hengchun Christian Hospital to help raise money for a facility dedicated to caring for the elderly, giving senior citizens in the area access to specialized long-term care services. A Bunun elder celebrates the opening of the Foundation s new day care center in Nantou. The Foundation s Love without Limits band plays at National Taiwan University Hospital s 115th anniversary celebration. Fubon volunteers participate enthusiastically in a public welfare event.

56 5 4 FUBON at FIFTY 1961~ Cathay Insurance (now Fubon Insurance) begins operations Fubon Commercial Bank Co., Ltd. is founded Fubon Financial goes public and becomes the first financial holding company to be incorporated in Taiwan Fubon Bank (Hong Kong) establishes a representative office in Dongguan, China Fubon Life formally merges with ING Life Insurance Co Fubon Securities completes a seven-in-one merger by acquiring six other domestic securities firms, the biggest merger in industry history.

57 5 5 Over the past half century, the Fubon Group has made history, evolving from a property and casualty insurer into Taiwan s most complete financial services group, and from a small enterprise with a few dozen employees into a 30,000-person conglomerate. Our interests have expanded from banking to property development and telecommunications and media, and we have extended our presence from our strong base in Taiwan to Greater China and even further onto the international stage in Vietnam, Thailand, Malaysia, the Philippines, Indonesia and the United States. The Fubon Group s 50-year history is not only a story of corporate growth, but one that has chronicled the country s financial liberalization policies and rapid economic growth. In Transcending 50 Challenging 100 the Group will continue to partner with all of Taiwan s people in forging a common well-being and prosperity and advancing toward another wonderful 50 years Fubon Bank (Hong Kong) buys a stake in Xiamen City Commercial Bank and renames it Xiamen Bank Fubon Land and Taiwan Mobile Co., Ltd. jointly establish Taipei New Horizons Co., Ltd. to develop a cultural park at the old Songshan Tobacco Plant site The National Taiwan University College of Law s new Wan-Tsai Hall, donated by Fubon Group Founder and Chairman Wan-Tsai Tsai, is formally dedicated Fubon Property & Casualty Co., Ltd. formally begins operations in Xiamen Fubon momo opens its personal care and drugstore chain Fubon Bank and Taipei Bank formally merge to become Taipei Fubon Bank.

58 5 6 Wan-Tsai Tsai Founder and Chairman, Fubon Group The Fubon Group was born on April 19, 1961, when Cathay Insurance, known today as Fubon Insurance, opened for business as Taiwan s first private property and casualty insurance company. In 1992, after years of continued expansion, Fubon Group Founder and Chairman Wan-Tsai Tsai decided to change the corporate name to Fubon and bring together all group affiliates under the new corporate identification system. After a half century of perseverance, the Fubon Group has become the most comprehensive financial services group in Taiwan, with interests in land development, construction, telecommunications, and media services as well. The Fubon Group adheres to a business philosophy emphasizing integrity, sincerity, professionalism and innovation, and is dedicated to developing innovative new products to satisfy society s diversified needs and embrace the new era of internationalization. Fubon Group Financial Services Fubon Financial Insurance Investment Fubon Insurance Fubon Life Insurance Fubon Securities Fubon Financial Holding Venture Capital Fubon Venture Capital Consulting Fubon Insurance (Vietnam) Fubon Property & Casualty Insurance Fubon Life Insurance (Vietnam) Fubon Securities Investment Services Fubon Futures Fubon Securities (BVI) Fubon Asset Management Banking Taipei Fubon Bank Fubon Bank (Hong Kong) Fubon Direct Marketing Fubon AMC Taiwan Sport Lottery Fubon Insurance Agent Taipei Fubon Bank Life Insurance Agent Fubon Capital (HK) FB Securities (Hong Kong) Fubon Insurance Brokers FB Investment Management Fubon Credit (Hong Kong) Fubon Nominees (Hong Kong) Fu-Sheng Life Insurance Agent Fu-Sheng Property & Casualty Insurance Agent

59 5 7 Real Estate Services Telecommunications Charitable Activities & Media Services Fubon Land Development Fubon Construction Fubon Real Estate Management Fubon Property Management Taiwan Mobile Taiwan Fixed Network TFN Media Win TV Broadcasting Fubon Multimedia Technology Fubon Charity Foundation Fubon Cultural & Educational Foundation Fubon Art Foudation Taipei Fubon Bank Charity Foundation Taiwan Mobile Foundation