Brokerages deny reports of hook-up

The four securities companies tipped to be in mega-merger have each issued denials of the rumor.

Local media reports have said that President Securities (統一), Capital Securities (群益), Jih Sun Securities (日盛) and Sampo Securities (新寶) will all merge into one mega securities house.

But some of the firms involved claimed to be unaware of the proposal. "I'm surprised to hear that news," said Ann Wang (王芳齡), vice president of Jih Sun. "However, Jih Sun has never stopped looking for merger opportunities since 1989, and any company could be our potential partner."

Analysts say Jih Sun Securities and Capital Securities -- both among the top five brokerages -- are bound to feel pressure to find merger partners following the merger last year of Taiwan's leading securities firm, Yuanta (元大), with the nation's third-largest, Core Pacific (京華).

The combined Yuanta-Core Pacific firm is expected to command nearly 10 percent of Taiwan's securities market, with net assets of NT$38 billion.

Polaris Securities (寶來), a pioneer and leader in trading over the Internet, also announced plans to acquire three smaller competitors last month.

The company expects its share of the brokerage market to grow to 4.5 percent from 3.2 percent after the merger.

"It will be difficult for small securities houses to survive in the future as more and more securities houses are merging together," said Lin Tzong-Yeong (林宗勇), chairman of Securities & Futures Commission (證期會).

Jih Sun's Wang agrees with that sentiment.

"Despite Taiwan's massive market turnover, there are too many securities houses in Taiwan to share the market," Wang said.

According to Wang, there are around 200 securities houses with more than 1,200 branches in Taiwan. More than 50 percent of a securities firm's profit comes from the brokerage business.

Taiwan's expected entry into the WTO will also intensify the pressure for consolidation, Wang said.

Compared to foreign securities houses, Taiwan's firms are too small, and it would be difficult for small-scale companies to compete with foreign firms.

The increasing popularity of online trading has also prompted the brokerage industry's recent case of merger fever, said an executive from a securities firm, who asked not to be identified.

Though online trading could potentially bring more business opportunities, it will also reduce brokerage commissions for securities houses. Therefore, securities firms must bulk up through mergers to lower operating costs.