The legendary Finance One empire has lost most of its glamour through miscalculations, Thanong Khanthong and Sasithorn Ongdee write.

The share price of Finance One Plc has fallen from grace, losing about 80 per cent from its high of Bt177 in January 1996 to Bt34.25 last Friday. Behind this tragic fall lies the miscalculations that are also symptomatic of the broader Thai finance and securities community.Over the past three years of the bear market, Pin Chakkaphak, the president, and his lieutenants continued to take Fin-One on a roller-coaster ride, seemingly believing that despite the initial setback the Thai market would soon stage a turnaround. Well, that turnaround story has not come to pass. The stock market meltdown and the economic slump are giving Fin-One some dry hay to chew. In the second half of the eighties and the early part of the nineties, Pin and his lieutenants enjoyed the glory of the bull market by successfully snapping up companies through mergers and acquisitions.

The bull market allowed them, by placing money on top of money, to build up Thailand's largest financial empire. Fin-One's subsidiaries now include Thana One Finance & Securities Plc, Securities One Plc, JF Thanakom Securities Ltd and One Investment Management.

Fin-One has attempted to diversify its business into construction materials and decorations, manufacturing, real estate and other businesses, yet its bread and butter is still the financial business, in which Pin hopes, so far unsuccessfully, to eventually own a commercial bank. In the meantime, One Holding, a latex manufacturer turned stock market speculator, would purely concentrate on the alchemy of science, making money out of paper.

On top of this pyramid empire stands the larger-than-life Pin, the takeover king, whose reputation has gone international. ''Pin has successfully leveraged his buy-outs by riding on the back of the bull market. But it will be interesting to watch how he'll cope with the bear market," a Thai stock market regulator said in 1994. Come the bear market and Pin has proved that his Fin-One is no better than others in weathering the storm. The crown is slipping from the king's head. His lieutenants were mostly graduates of the bull market and had little experience, if not discipline, in dealing with a bear market. Like other finance companies, Fin-One was not equipped with a trigger system to stop losses.

''His lieutenants have damaged the company. They continued to invest even when the market was bearish. But, as president, Pin has to bear most of the brunt," an observer of Finance One Group said.

Termchai Pinyawat, one of Fin-One's managing directors, is responsible for creating most of company's portfolio woes, sources said. Fin-One generates about 14 per cent of its earnings from portfolio investments out of its total income, which is derived largely from interest income ­ about 70 per cent.

The heavy portfolio losses have prompted Pin to step in and take charge of the company's portfolios, while Termchai's investment assignment has been significantly curtailed, sources confirmed.

In retrospect, Fin-One is the victim of its own success. By tying most of its fortune into the capital market, it also stands to lose a lot of its fortune in the capital market. Last year the stock market shed more than 35 per cent of its value, dealing a blow to Fin-One's books and keeping it hostage.

''When the stock market was bullish, anything Fin-One touched turned to gold. Now, in the bear market, everything it touches explodes in its face," the head of a US investment banking house said.

However, Fin-One is endowed with a strong capital base and a huge net worth of some Bt15 billion ­ a shield to any substantial downside risks. With regard to capital adequacy, Fin-One is meeting the Bank for International Settlements rules at 14 to 15 per cent, against the Bank of Thailand's minimum requirement of 7.50 per cent.

Last week, however, Pin was forced to come out in public with a statement to lay to rest rumours in the market that the group was coming under financial difficulties. As of the end of last year, Pin reported, Fin-One had an outstanding Bt27.84 billion in investments, of which Bt5.55 billion accounted for portfolio investments.

At the SET Index of 831.57, Fin-One's portfolio had lost some Bt1.16 billion, a provision against which is necessary to bring its net worth down to Bt14 billion. On Friday, the SET Index fell further to 788.04 and Fin-One's portfolio would suffer further losses if marked to market.

''If Fin-One loses all of its portfolio investment, the company will still survive with Bt10 billion in net worth without any problems," the observer said. ''As for the rumours in the market that Banque Paribas, Fin-One's long-time ally, and Thai Farmers Bank had a conflict with the company, I believe they were groundless."

A report by Goldman Sachs, the US investment banking house, indicated that some Bt13 billion of Fin-One's bond portfolio, built up in early 1996 in anticipation of the declining interest rates, has also tied the company's resources to lower-yielding assets. A pronounced decline in interest rates in the near future is unlikely to happen to favour its bond portfolio.

The Fin-One management admitted to Goldman Sachs that it had loan problems, particularly in the hire-purchase business, which accounts for 25 per cent of its total loans. This is increasing due to the economic slowdown. Fin-One's non-performing loans ratio has doubled to 5 per cent from 2.5 per cent at year's-end 1995. This non-performing loans ratio is expected to peak at 7 to 8 per cent of total loans versus its accumulated loan-loss reserves of 2.25 per cent, Goldman Sachs said.

''Most non-performing loans are associated with car hire-purchases ­ 50 per cent of Fin-One's hire-purchase loans are for trucks and pickups, and cater to the provinces ­ and property, which accounts for around 25 per cent of total loans," Goldman Sachs said.

To be fair to Fin-One, its share price still commands a higher premium than its peers in the finance sector. It is trading at a price/earnings ratio of 7.4 times and a price to book value of 0.93, better than Dhana Siam Finance & Securities' 1.22 but poorer than Phatra Thanakit's 0.57.