Fubon eyes International Bank of Asia

Fubon Financial Holding Co (富邦金控), the nation's second-biggest banking group, yesterday said that it has inked an agreement with Arab Banking Corp to buy the latter's shares in the Hong Kong-based International Bank of Asia (港基銀行).

"Arab Banking has agreed to sell its 55-percent stake in the Hong Kong lender at HK$3.68 (NT$16.1) per share," Victor Kung (龔天行), Fubon's senior vice president, said at a press conference yesterday.

The group is hoping to complete a full takeover of the Hong Kong lender if it can acquire, at the same price, another 20 percent stake from China Everbright Ltd (中國光大控股) and another 25 percent from market investors, Kung said.

The deal is expected to be closed by the year's end, pending regulatory approval from authorities in Taiwan and Hong Kong, Kung said. It will be the first takeover of a Hong Kong lender by a Taiwanese bank.

Fubon shares fell NT$1, or 3.1 percent, to NT$31 yesterday on the TAIEX.

The proposed total-takeover of International Bank is estimated to cost Fubon between HK$2.4 billion (NT$11 billion) to HK$4.3 billion (NT$19 billion) in total -- 1.16 times the Hong Kong lender's net assets, Kung said, calling it a bargain with the lowest buying price in 10 years.

With the economy in Hong Kong rebounding, Kung said that the lender will continue to focus on consumer banking while meeting China-based Taiwanese businessmen's financing needs.

But Fubon Group Chairman Richard Tsai (蔡明興) has bigger plans, saying the lender may be used as a springboard for Fubon to tap into other Chinese markets.

In accordance with the Closer Economic Partnership Arrangement (CEPA) signed between Hong Kong and China in late June, the International Bank may enjoy more benefits than foreign banks to branch out into China, Tsai said.

The advantages of opening a Hong Kong-affiliated bank in China include less working capital required to open branches in China and permission to trade in Chinese yuan, Tsai said. The minimum working capital is US$6 billion, as opposed to US$20 billion without a parent bank in Hong Kong.

The cross-strait financial regulation, however, may pose a hurdle for Fubon to proceed with its greater China dream, a government official said.

"Fubon's detour model can never work," said Gary Tseng (曾國烈), director-general of the Bureau of Monetary Affairs under the Ministry of Finance, adding that Fubon must abide by the same restrictions on local banks to branch out into China if applying for an approval.

William Fong (方偉昌), a banking analyst at Primeasia Securities Co, also expressed concern that the International Bank, after ownership is transfer to a Taiwanese financial group, may not be entitled to the benefits as a Hong Kong lender.

Fubon's chief strategy officer Ng Wing-fai (吳榮輝) yesterday insisted that the upcoming ownership transfer won't affect the fact that the International Bank is a "Hong Kong incorporated bank, which is entitled to the benefits."

Fong, in addition, called the Hong Kong banking sector's transparency into questions, saying hidden bad loans are hard to detect despite Fubon's claim that the lender's non-performing loan ratio is only 2.6 percent.