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Fubon's Tsai urges faster bank M&A

The government should have private or foreign investors acquire state-run banks as a catalyst to accelerate mergers and acquisitions (M&As) in the local banking industry, Daniel Tsai (蔡明忠), chairman of Fubon Financial Holding Co (富邦金控), said yesterday.

Tsai made the remarks in response to a question raised by college students during a forum on the operation and management of financial holding companies.

The nation plans to cut the number of state-owned or state-controlled banking institutions by half by next year to compete with foreign rivals. To reach the goal, the government has been keen to promote M&As among these banking institutions, with recent speculation that First Financial Holding Co (第一金控) and Chang Hwa Bank (彰化銀行) were being targeted.

The two rumored mergers did not proceed smoothly, however, and Tsai attributed this to the banks' attitudes of wanting to take a leading role in bank consolidation instead of becoming merger targets of their competitors.

"I think state-run banks, although they have large market shares in Taiwan, should be the acquisition targets, to improve their profitability," Tsai said.

One good example of a private bank acquiring a state-run bank and successfully creating value was Fubon's takeover of TaipeiBank (台北銀行), Tsai said.

Fubon, the nation's second-largest financial services group by market value, took over TaipeiBank from the Taipei City government in August 2002. The private lender forecast that net income at its banking arm may rise 20 percent this year after the takeover of TaipeiBank formally took effect in January.

State-owned banks have different corporate cultures than private banks, and their corporate structure is not profit-oriented or customer-oriented, which is why it took Fubon a long time to reorganize TaipeiBank, Tsai said.

In Taiwan, large, government-controlled banks account for 40 percent of the market. But profitability at government banks is much lower than at private banks. According to an industry report, state-run banks' profits only accounted for 28.5 percent of total profits created by banks in the third quarter last year, with private banks creating 71.5 percent of profits.

Tsai further suggested the government establish a valuation measure to differentiate good banks from poor ones to develop the financial market and attract foreign investors.

The absence of a fair evaluation system affected Chang Hwa Bank's issuance of a global depositary receipt (GDR) this month, as Chang Hwa Bank had claimed a current book value of about NT$15 per share, while reports said foreign investors only bid for NT$9 to NT$14 per share, he said.

In response, the financial authorities said that they do not favor using administrative measures to push forward consolidation of the nation's banking industry.

"We hope to leverage the market mechanism [to facilitate the consolidation], instead of government force," Susan Chang (張秀蓮), vice chairwoman of the Financial Supervisory Commission, told a press briefing yesterday.
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