E. Sun finalizes bank bid

E. Sun Commercial Bank (玉山銀行), which has Prudential Plc as its second-largest shareholder, is slated to officially take over the bankrupt Kaohsiung Business Bank (高雄企銀) on Sept. 4 after inking an agreement with the Central Deposit Insurance Corp (CDIC, 中央存保) yesterday.

The Ministry of Finance's CDIC helps supervise the nation's failed lenders, such as Kaohsiung Business Bank and Chung Shing Commercial Bank (中興銀行).

At yesterday's ceremony, Minister of Finance Lin Chuan (林全) lauded the deal as being the nation's first successful example of the government bailing out a debt-ridden bank using the Financial Restructuring Fund (金融重建基金), which is similar to the US' Resolution Trust Fund.

"Today [yesterday] marks an important moment for the nation's progress on financial reforms," Lin said.

He said facilitating an "exit mechanism" (退場機制) to force poorly-performing financial institutions out of the marketplace was necessary to beef up the banking sector's health and competitiveness.

"As long as the financial-service sector is internationalized to beef up its competitiveness, the nation's economic prosperity can be guaranteed in the future," Lin said.

Aside from the exit mechanism, Lin, however, said that the nation's financial reforms still face many challenges, including the to-be-revised financial supervisory system and the legislation of financial bills.

On Monday, E. Sun Bank outbid seven other bidders to acquire Kaohsiung Business Bank, which has a total of 60 branches nationwide, with the governmental fund agreeing to absorb NT$13.4 billion (US$400.7 million) of the distressed bank's estimated NT$18 billion losses.

Completing the acquisition deal, E. Sun president Hou Yung-hsung (侯永雄) yesterday also vowed to maintain the bank's future return on asset (ROA) and return on equity (ROE) after its takeover in September.

According to E. Sun, the acquisition deal is expected to benefit its future expansion plan since its number of branches will jump from 54 to 114, next to Fubon Financial Holding Co's (富邦金控) 121 branches around the nation.

More importantly, the finance ministry further agreed E. Sun could relocate 38 Kaohsiung Business Bank branches to metropolitan Taipei, which may pose a potential threat to its mega-bank rivals, including SinoPac Holdings Co (建華金控) and Fuh-Hwa Financial Holdings Co (復華金控).

According to E. Sun chief strategy officer Joseph Huang (黃男州), metropolitan Taipei is the bank's most important business district, as nearly 60 percent of the bank's revenues are generated by its 28 Taipei branches.

"The deal is a bargain, with each branch costing NT$62 million since E. Sun may additionally have to pay approximately NT$4 billion to make up the distressed bank's losses," Huang previously told local Chinese-language media.

Despite the merger's potential risks, E. Sun is aiming to achieve earnings per share of over NT$2 next year, while it has revised downward its net-profit forecast from NT$20.3 billion to an estimated NT$16.6 billion by the end of this year, Huang said.

E.Sun spokesman Du Wu-lin (杜武林) said the bank expects to break even within the next two years.

E. Sun previously earmarked NT$2.38 in earnings per share.