Chapter 90: Questions About Stock Pledging in Taiwan

Source: https://www.facebook.com/100063294665283/posts/749577290495420/

[James’ Origin and Today] Chapter 90 - [Taiwan Stock Pledge Question] (12/15/2023)

On June 11, 2023 (Sunday)

Hello Teacher James:

We asked a question about "stock pressure" in CloudHouse last night. Thank you for your answer. Here are four points:

1. How much is the interest? How much is the handling fee?

James: The interest rate varies from person to person. If you have stock pledges, the interest rate for stock pledges in Taiwan is usually around 2.5%. Try to get as low a price as possible. If your job is stable in a large Taiwanese company or a civil servant doctor, the interest rate will be even lower. Usually the handling fee for the first transaction is between NT$3,000 and NT$5,000.

2. Can I not repay the principal and interest?

James: Because you are pledging stocks, the net value of your stocks cannot be too low. Usually the borrowing limit is 50% to 60% of the stock assets, depending on the amount given to you by China Securities Financial Holdings (we recommend pledging at a securities firm, which is more flexible). This is also related to your occupation. Sometimes it may be beneficial to handle it at a securities firm. Usually banks will require you to repay interest, but we all borrow money from our available balance to repay interest, so it is equivalent to borrowing money to repay interest, which means that even the interest does not come from our own pockets.

3. Can I never pay it back?

James: You don’t have to repay it for the rest of your life. As long as your stock assets are greater than twice your borrowings, your bank will not require you to repay it until your assets and liabilities become inheritance after your death. The IRS will ask your heirs to sign a repayment guarantee, and the bank will also ask you to repay, so in the end it is usually your heirs who sell the stocks to repay the debt and pay the inheritance tax. The best situation is that the children's assets are sufficient, and the children also pledge stocks and borrow money to pay off the debt before inheriting the inheritance. Then the inheritance is pledged, and generations of people are borrowing money to live.

4. Is there a deadline to change the contract? Contract exchange fee?

James: Each bank provider is different. Some banks require you to renew your contract once a year, and some only renew your contract once a year and a half. Some banks charge a handling fee for contract renewal, and some do not have a contract renewal fee. Moreover, you do not need to repay the contract first. Assuming that you still have a balance in your credit limit, you can borrow a new one and repay the old one, so you can just change the contract without paying back.

What conditions and circumstances are required for 2 and 3 to be feasible? After all, securities firms want to make money, so how can they not have to pay it back? What do they eat? I still don’t understand this, and I would like to ask the teacher to clarify my confusion, thank you!

James: Banks have balance sheets on their books, so your stocks are pledged in the hands of the bank. Your pledged assets are the bank's debts, and your borrowings are its assets. So the more you borrow, the more assets it has, so it doesn't matter if you don't have to repay it because the bank's assets are more and more as you borrow more money. The largest inventory in a bank is cash, and the inventory of cash is their debt. In order to reduce their debt, they should lend out as much money as possible. If they can reduce their inventory and lend you money, their turnover will increase, their performance will be better, and their profits will increase. Lending money out is their main business, and they don't really want you to repay.

For general real estate mortgages, the bank will ask you to repay because the house will become old and broken. The longer you live in the house, the lower its value will be. So the bank needs you to repay, because if your loan is never repaid, the final value of the house may be lower than the total value of your loan and interest, and the bank will make a loss. Therefore, the bank will ask you to repay the real estate mortgage, but it is not required for stock pledges, and the stocks will be normal. It will continue to increase in value, unless there is a short-term sharp decline (but the bank can sell your stocks at any time to preserve the bank's principal), otherwise stock pledges are safer for banks than real estate pledges.

In addition, I would also like to thank my teacher. In the past, I also learned technical analysis from a certain teacher. I was short-term in and short-out, which made me feel bad and lost a lot. Last year, I started to learn Mr. James’s "Tao Jian" investment method and invested a lot of money. So far, I have made a profit of more than 20%. More importantly, I can sleep peacefully. Thank you, teacher, for guiding me on a bright path.