Shares of state-owned bank soar on rumors

Chang Hwa Commercial Bank (彰化銀行) shares soared NT$1.3, or 6.7 percent, to close at NT$20.8 on the TAIEX yesterday on reports that Chinatrust Financial Holding Co (中信金控) may take over the state-owned bank.

Chang Hwa flatly denied speculation that it is striking a merger deal with Chinatrust Financial.

"We've never conducted merger talks with any financial institution, including Chinatrust," Chang Hwa's executive vice president, Hsieh Chao-nan (謝昭男), said yesterday.

Yesterday a Chinese-language newspaper reported that Chinatrust Financial had recently bought 41.6 million shares of Chang Hwa through its affiliated brokerage, KGI Securities Co (中信證券) -- shares valued at more than NT$760 million (US$22.94 million).

Chinatrust Vice Chairman Jeffrey Koo (辜仲諒) has previously hinted that the financial-service company is cooking up a merger deal with a bank that owns over 100 branches.

This has led the media to speculate that Chinatrust is interested in buying Chang Hwa.

Hsieh said he had no knowledge of Chinatrust buying the bank's shares on the open market, but he extended a welcome to any investor interested in investing in the company.

Chinatrust said it had no comment on the merger speculation.

The government has been encouraging the nation's banks to pursue further consolidation in order to compete with foreign banks.

Stock analysts, however, considered it unlikely yesterday that Chinatrust Financial will acquire Chang Hwa, which has been posting poor results.

"Foreign investors, who represent an 83-percent ownership stake in Chinatrust, will be scared away if Chinatrust buys ill-performing state-owned Chang Hwa," said George Wu (吳裕良), an analyst at Primasia Securities Co in Taipei.

Another analyst theorized that Chinatrust's reported investment in Chang Hwa may indicate an intention to gradually acquire enough shares to influence the state-run bank's management decisions, rather than a strategy to acquire the bank.

"Chang Hwa is simply too big to buy," said Huang Yu-chien (黃裕堅), an analyst at Asia Securities Inc (亞洲證券).

Huang said that the NT$760 million worth of shares that Chinatrust is reported to have recently bought accounts for only a small portion of Chang Hwa's market capitalization.

The bank's market capitalization now stands at approximately NT$48 billion.

"But through stock purchases, Chinatrust may find a way to take up seats on [Chang Hwa's] 14-member board," Huang said.

Hsieh said such speculation is premature considering that the bank's next board election isn't scheduled to take place for another two years.

Chinatrust Financial shares rose NT$2.5 on the TAIEX yesterday to close at NT$41.7. KGI rose by NT$1 to close at NT$16.5.