PJAM urges SinoPac FHC (2890 TT) to evaluate aptness of civil action against Morgan Stanley

TAIPEI,Jan. 2,2019 -- PJ Asset Management (PJAM) recently issued a letter to the board of directors of SinoPac Financial Holdings Company Limited ("SinoPac FHC" or "Company") in December 2018. The letter,which is reproduced below,details concerns regarding Bank SinoPac (the Company's subsidiary) has recently launched civil action against Morgan Stanley as it may have an inadvertent impact to Sinopac FHC's reputation and shareholders' interests. PJAM urges the board of directors in exercising their duties to supervise the subsidiary,to prudently evaluate the appropriateness of this action. The original letter in Chinese can be found on PJAM's official website http://www.pjam.com.tw/.

The Board of Directors

Sinopac Financial Holding Company

Dear Members of the Board,

PJAM and its affiliates currently own more than 8% of the outstanding shares of the Company.

According to the Company's recent announcement on the Market Observation Post System (M.O.P.S.),in order to respond accordingly to the board in clarifying the Far East National Bank ("FENB",Bank SinoPac's subsidiary in US) sale ("Transaction"),Bank SinoPac requested that Morgan Stanley provide all email correspondence between Bank SinoPac's project team and Morgan Stanley during the time Morgan Stanley was commissioned as the financial advisor for the Transaction.

From the above announcement and local news coverage:

The case was applied to FSC for approbation for FENB in August 2016,which implies that the case would have been approved by Bank SinoPac's board of directors before that date. It is understood that a major transaction of this kind would need to be thoroughly reviewed,discussed,and decided by the board with supporting evidence of internal and external fairness opinion report,financial advisory evaluation report,and legal opinion report. Understanding the extent of due diligence required,it would be surprising to learn that the incumbent board directors will agree to take the legal action now by spending so much Company's resources. Does this decision have implications for questioning any wrongdoings of the management team who participated and directors who made the decision then? Given that six of the nine current directors were on the board at the time,including the same three independent directors,it seems unusual that the same group of people is questioning their own decision at this time.

The local news reports (links in below) stated that Bank SinoPac suspects that the project team members used personal email to communicate with the financial advisory firm about the transaction. If this is true,it prompts concerns that serious vulnerabilities may exist in the Company's internal control system. Normally,a large and well-organized financial institution will have strictly established firewall and safety control mechanisms to prevent employees from using personal email to communicate with clients and vendors for business matters. This assumption does little to ease our discomfort over internal controls despite claims by SinoPac FHC that there have been thorough self-examinations and corrections in legal compliance and its internal control system after recent years' crises.

We have reservations about the decision to use Company resources to launch a civil suit against a well-known international firm which may unintentionally deter other professional institutions from cooperating or providing specialized services for SinoPac in the future. This action may damage the Company's reputation built over years,or pose a negative impact on the Company's future business and,consequently,its shareholders.

Based on the key concerns above,we strongly advise that the board of SinoPac FHC should request Bank SinoPac to confirm if the Transaction details are processed and reviewed properly. However,we believe that the key focus regarding this transaction should be on evaluating the diligence of the project team,implementing sounder employee management,correcting internal control vulnerabilities,reinforcing good corporate governance and the board's oversight - before taking legal action against a third-party financial advisory firm. We sincerely hope that the company can re-evaluate the advantages and disadvantages of this legal action and place the long-term benefit of all shareholders as its top priority.

Local News Reports:

China Times,10 December 2018,https://bit.ly/2EAu6pB

ETtoday,https://bit.ly/2ScuwXg

FTV,https://bit.ly/2rAVfRM

Media contact:

Pamela Wu

+886227916668#712

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