Holding Company Act to change

The Ministry of Finance is preparing to revise the Financial Holding Company Act (金控法) to prohibit subsidiaries with stock in their parent companies from voting to elect members from their parent boards of directors, Finance Minister Lin Chuan (林全) said yesterday.

Following the passage of the Financial Holding Company Act in 2001, the landscape of the nation's financial sector has changed as a result of the formation of several financial holding companies through mergers and acquisitions.

But "some financial holding companies have taken advantage of subsidiaries' stock in parent companies to influence the results of board elections, which is inappropriate," Lin told a press conference.

Lin called the press conference yesterday afternoon to respond to a newspaper report that several board members from China Development Financial Holding Corp (中華開發金控), the nation's fifth-largest financial company in terms of market value, were being aggressive in recruiting authorization letters from stockholders.

The paper claimed this campaign was being conducted to secure seats at an upcoming board election on April 5.

It said that China Development chairwoman Diana Chen (陳敏薰) owns only about 0.11 percent of the company.

Without pointing fingers at China Development or Chen, Lin said that manipulation of board elections through subsidiaries' holdings in parent companies is in clear violation of corporate governance principles, and jeopardizes major shareholders' interests.

Even so, the minister admitted that a loophole exists in the Financial Holding Company Act and the Corporate Law (公司法), and this has given several parent companies the opportunity to manipulate board elections in recent months.

As preparing revisions to the corporate law is time-consuming, the ministry reached a consensus last week that it will seek legislative approval as soon as possible to facilitate the passage of revisions to the Financial Holding Company Act, Lin said.

The practice will remain legal until revisions are passed in future legislative sessions.

But Lin urged financial holding companies planning to hold board elections next year to exercise restraint because stockholders may file lawsuits on the basis of such manipulation, in accordance with corporate law.

"We strongly discourage such manipulation in board elections," he said.

China Development shares gained NT$0.30 yesterday to close at NT$16.40 per share on the TAIEX.

Local media have reported that at least five investors are interested in bidding for control of the lender.

The company made a profit in the third quarter, helped along by investment gains.

Net income in the three months ending Sept. 30 more than quad-rupled from a year earlier to NT$1.8 billion.

Yesterday, another local newspaper reported that KGI Securities Co (中信證券) and its affiliates had acquired close to 10 percent of China Development.

KGI Securities, which is owned by the Koos Group (和信集團), recently bought China Development shares on its own and through its affiliates, taking advantage of China Development's sparse holdings, the newspaper said.