Industry watchers are applauding Citicorp's NT$23 billion investment in Fubon Group (
In addition, analysts say, the timing of the alliance indicates that more than just economic factors are involved, and that cross-strait considerations may have come into play. China's vast market is one of the primary reasons Citicorp and Fubon got together, industry watchers say.
According to the two companies' plan, Citicorp's asset management and life insurance arm in Taiwan will be merged with Fubon's corresponding units; other business units for both groups will remain the same.
When it comes to exploring overseas markets, the pair will operate through a 50-50 joint venture company, selling financial products such as fire and casualty insurance, life insurance and securities.
A regional investment bank will also be established, however, the location of its headquarters has not yet been decided, according to Tsai Ming-chung (蔡明忠), Fubon Group's vice president.
But while there are many advantages to the Citigroup-Fubon alliance, analysts cite the opportunities in China as one of the biggest.
"The major target for Citicorp is China's insurance market," said a senior executive of an international insurance group, who declined to be identified. With Fubon, "there is no better choice for Citicorp to pick.
"An insurance company like Fubon could provide ample human resources with fluency in Mandarin. It's unlikely to find another suitable partner in either Hong Kong or China," the executive said.
But the alliance isn't just a one-way street, as Fubon also benefits from Citigroup's experience and expertise. Together, the pair are well-equipped to go after China's 1.3 billion population, industry watchers say.
Fubon also benefits from having a US partner, which could come in handy when cross-strait tensions flare up, the insurance executive said.
"After the DPP comes to power, Taiwanese companies will prefer having a shield when they deal with China," the executive said. "A prominent American company such as Citicorp could certainly provide that function."
Even on the domestic front, the alliance provides both parties with benefits.
After KMT lost its hold on the presidency, many conglomerates began turning to the DPP, who they will count on for support over the next four years.
"With Citicorp's alliance with Fubon, it is like an endorsement of the DPP administration," the insurance executive said. "Also, Fubon Group might replace groups such as President (統一) or Rebar (力霸) that were well connected in the KMT era. It's why Chen visited Fubon Group last week when the alliance agreement was disclosed."
Political considerations aside, one academic said the alliance could serve as a model for other financial groups to follow, leading to consolidation in the industry.
"Citicorp must have realized that excessive competition in Taiwan's financial market is indeed a fact," said Norman Yin (
"It's why Citicorp decided to consolidate its asset management and life insurance units with Fubon. There is simply not much money to make in an overcrowded market," Yin said.
"Whether the alliance is successful or not remains to be seen, but at least the direction is correct."
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