PJAM issues third letter to Sinopac FHC Board of Directors

TAIPEI,Aug. 13,2018 -- Yuan Tong Investment Ltd. (a full subsidiary of PJ Asset Management ("PJAM")) recently issued a letter to the board of directors of SinoPac Financial Holdings Company Limited ("SinoPac FHC" or "Company") in August 2018. The letter,which is reproduced below,addresses concerns on the business performance and risk management of SinoPac FHC. The original letter in Chinese can be found on PJAM's official website http://www.pjam.com.tw/.

The Board of Directors

Sinopac Financial Holding Company

Dear Members of the Board,

I am writing to you on behalf of Yuan Tong Investment Ltd and its affiliates (collectively "we"),which currently own approximately 9.4% of the outstanding shares of the Company,making us one of your largest shareholders.

On July 26th,2018,the board of directors of SinoPac FHC responded to our previous two letters sent on June 26th,2018 and June 29th,2018 respectively regarding questions on the Company's employment policy and business performance. We believe that the response must have been discussed and deliberated thoroughly by the board of directors and management team,as the response was received a month after our letters were issued. Nonetheless,we are concerned that the response we have received lacks substance; there is no concrete improvement plan mentioned,nor a response on how shareholders rights are to be protected. On this condition,we reserve our comments on whether the established 'Ethical Corporate Management Committee' and 'Sustainability Committee' can effectively improve the Company's corporate governance efficiency,and we will follow and monitor the performance of these committees.

In terms of risk management and business performance,we ask for your clarifications on our concerns raised below:

Risk Management

It was stated in SinoPac Securities' 2018Q1 financial report that approximately NT$38 million of overdue receivables and around NT$20 million of allowance for loss was booked by SinoPac Futures owing to client defaults. This loss was caused by a sharp fall of TAIEX on February 6th,2018 following an overnight drop in the US stock market. Moreover,following the news report that SinoPac Securities suffered a credit default on May 23rd,SinoPac Securities subsequently reported a resulting net loss of over NT$200 million in June 2018,the only company posting a loss among the top ten securities companies in Taiwan. Can we rightfully infer the loss was caused by the default incident and demand to know the exact credit default amount?

We are reminded of the losses incurred last year at SinoPac Securities Asia when trading for China Huishan Dairy Holding Co was suspended on the Hong Kong Exchange. A NT$1 billion loss was booked at SinoPac Securities Asia,a subsidiary of SinoPac Securities. Pledged shares of the stock had been used as collateral for margin loans (as reported in the consolidated financial statements for the three months ended March 31,2017). This incident may reflect mismanagement in corporate credit checks and less-than-robust counterparty risk control. These repetitive credit loss incidents suggest that the incumbent management team may have failed to undergo a comprehensive self-evaluation mechanism and may not have established a more integrated risk management system in order to ensure that similar mistakes did not happen again. While its peer companies performed well in 2018 H1,SinoPac FHC again fell behind peers because of poor risk management. Recently,the Company has announced a new hiring of FHC Chief Risk Officer (CRO) YANG,TUN-JEN,who was the former CRO of JihSun Holdings. Please provide a clear explanation of what specific targets have been set for the new CRO and what improvements in the risk management mechanism have taken place.

Business Performance

By 2018 Q2,the published financial numbers revealed that SinoPac FHC was still performing far behind its peers. When we eliminate the one-time loss from 2017 net income,we would expect a normalized yearly profit of NT$12 billion for 2018. Sinopac FHC's first half-year profit results were far below this NT$6 billion projection. Without any sign of recession or financial crisis in the H1 2018,we are disappointed with the Company's underperformance compared to its peers' record profits. We sincerely ask the board directors to take this issue seriously and propose concrete and effective solutions.

In addition,referencing the Company's 2017 annual report,we can see a bloated corporate structure and unnecessary/redundant layers of management. Sinopac FHC has consistently paid a much higher management remuneration over the past years,compared to peers,despite relative underperformance. Has any lean organization or reduction of management levels been considered to enrich employee welfare and further improve overall morale and productivity?

We would request that the above-mentioned issues be discussed and addressed by the board of directors in the next board meeting before replying to us in written form.

Best Regards,

Yuan Tong Investment Ltd.

Media Contact:

PJ Asset Management

Pamela Wu

+886-2-2791-6668 #712

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