CDIB and Lone Star Group align

China Development Industrial Bank (中華開發銀行), Taiwan's largest lender by market value, has aligned with the Lone Star Group, a Texas-based investment fund, to set up a company that will buy bad loans from local financial institutions.

Lone Star signed a memorandum of understanding and a confidentiality agreement with China Development last month, said James Ouyang, project adviser at the Taiwan lender. China Development was originally negotiating with Morgan Stanley to handle the loans. According to local media reports, the joint-venture plan with Lone Star is likely to be concluded in this month.

As much as NT$1 trillion in non-performing loans are currently being held by the local banking sector. Five asset management companies plan to enter the local market to help deal with the bad loans.

In addition, a financial asset service company will provide real-estate appraisal services to AMCs.

The Taiwan Asset Management Co (台灣金聯資產管理公司) is set to begin operating next month. The company was established in July by the Bankers Association (銀行公會) with former finance minister Lin Cheng-kuo (林振國) acting as chairman. The new company is capitalized at NT$17 billion.

Hua Nan Commercial Bank (華南銀行) is negotiating with Lehman Brothers on forming an AMC. The total capital of the joint-venture may be between NT$10 billion to NT$15 billion.

Chinatrust Commercial Bank (中國信託銀行) and Goldman Sachs may also pair up, and Overseas Chinese Bank (華僑銀行) and GE Capital could also combine to enter the fray.

The joint venture between Chinatrust and Goldman Sachs has been postponed, a bank executive said last week.

The Overseas Chinese Bank, on the other hand, has been planning to put up its NT$30 billion in non-performing loans as its investment share in the joint venture.