Prospect of bigger banks discussed

Taiwan may only have five to six major financial powerhouses in the next five years following the ongoing restructuring in the financial sector, Norman Ying (殷乃平), an economist at National Chengchi University (政治大學), said yesterday.

"Some of the banks may be foreign-owned," he said yesterday at a seminar organized by Citigroup on the financial holding company bill. The forum was held at Chengchi University.

Bankers, however, said that while Taiwan's financial sector is headed for consolidation, holding companies are not the answer for greater profitability. The primary motive of financial holding companies is to cut costs and boost profits by creating one-stop financial shopping centers, they said.

Holding companies will increase their economies of scale and their economies of scope -- which is the diversity of financial products, said Vice Finance Minister Sean Chen (陳沖), who also attended the seminar.

"Apart from cross-selling of financial products," Chen said, "the banks must also be able to cross-design products in order to offer highly personalized services to its clients."

Daniel Tsai (蔡明忠), chairman of Fubon Insurance Co (富邦產物保險), which last year established a strategic alliance with Citigroup, also believes that bigger banks may better cope with future challenges.

"That is why we decided that hiding behind a big rock will help us better withstand the storm," he said, referring to the company's partnership with the US banking giant. He said that the fundamental "shared value" between Fubon and Citigroup is the cross-selling of a wide range of products.

"Distribution is most expensive," Tsai said. Nevertheless, he believes that smaller banks with highly specialized niche services may also be able to survive.

The Legislative Yuan is soon expected to pass the Financial Holding Company Law, which analysts believe will help pave way for more mergers and acquisitions in the financial industry.

Domestic banks are allowed to invest in related financial sector subsidiaries, such as insurance, securities brokers and investment management firms. But current regulations do not allow banks to maintain full ownership; they are permitted to buy only 25 percent of other financial firms.

But Thomas Lee (李桐豪), head of the department of finance at National Chengchi University, questions the necessity for such holding companies.

Lifting the ceiling on the ownership of banks in other related financial companies is enough for such consolidation, Lee said. The belief that the holding companies will help improve transparency and streamline bureaucracy may turn out to be a fallacy, he said.

"This is a positive thing. But we have to really ask ourselves do we really need to have financial holding companies and also educate the public on what exactly is a financial holding company."

Lawrence Liu (劉紹樑), an attorney specializing in banking industry with Lee and Li Attorneys-at-Law (理律法律事務所), Taiwan's largest law firm, believes that Taiwan's financial holding company structure is based on the US model. The US financial holding company law took shape after the US abolished the Glass Stegall Act in 1999, allowing banks to own brokerage houses.

"The holding company law is most influenced by the US model," Liu said, who serves as an attorney at Citigroup. "Taiwan usually likes to be the second mover." The US is one of the "more developed financial sectors in the world," he said.