The recent run on Taiwan Development and Trust Corp (
What's happening is that troubles long ignored in the financial industry are finally receiving some attention.
And once the new presidential administration -- with its aggressive stance on corruption -- comes to power, more and more bank runs are likely as long-festering problems surface, analysts said.
"After the bank run on Chung Shing Commercial Bank (中興銀行) last month, the general public lost confidence in problematic financial institutions," said Norman Yin (殷乃平), professor at Chengchi University. "So immediately after a local newspaper reported a problem at Taiwan Development last Friday, a new bank run was triggered."
Yin added that many financial institutions have begun focusing more on their loan risks after incoming Minister of Finance Shea Jia-dong (
As for Taiwan Development's problems, analysts say the financial institution has been plagued by bad management for years.
Taiwan Development is a real estate developer and financial trust once wholly owned by the Taiwan Provincial Government. It was later privatized and listed on the Taiwan Stock Exchange.
During the state-run period, Taiwan Development's shares were controlled by the three largest commercial banks, while the management team was selected by the Provincial Government and the Ministry of Finance (
"The management at Taiwan Development has been terrible for years," said Larry Liao (廖瑞雄), a fund manager of ING-CHB Securities Investment Trust (彰銀喬治亞投信).
"They've done a lot of messy real estate development projects."
In one example, Liao recalled when Taiwan Development bid a "ridiculously" high price for a piece of land in Panchiao (
"If Taiwan Development had actually purchased the land, it would have created losses much higher than the bidding price," Liao said. "It was an unbelievable mistake that no one should ever have made -- but Taiwan Development did it."
And the problems at Taiwan Development are just the tip of the iceberg, Liao said, as troubles in the financial industry are widespread.
"As for other problematic institutions, farmers and fishermen's association credit cooperatives across the island are a much more serious black hole for the new administration," Liao said. "In comparison to the problems of credit cooperatives, the Chung Shing Bank and Taiwan Development are just small fish."
Following Taiwan Development's privatization last year, internal conflict among its board has been commonplace. Many private shareholders have been losing money in Taiwan Development's equity investments, leading to strong criticism of the govern-ment-assigned directors.
Market watchers said Taiwan Development's internal struggle may have triggered last week's disclosure of financial difficulties, which in turn resulted in the bank run.
Another recent real estate deal also put Taiwan Development in the spotlight.
Taiwan Development recently purchased a piece of land in Yangmei (
But the price far exceed market value, and now the Ministry of Finance intends to block the deal. There have been allegations the deal was arranged by Taiwan Development's directors for the benefit of private shareholders.
"From my observations, private shareholders have been trying to recover what they have lost investing in Taiwan Development's equities," Yin said.
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