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First Financial sells unit for NT$8.4bn

First Financial Holding Co (第一金控), the nation's fourth largest financial service provider by assets, yesterday announced that it will sell its property-insurance unit Mingtai Fire and Marine Insurance Co (明台產險) to Mitsui Sumitomo Insurance Co, Japan's second largest property and casualty insurer, for a lump sum of NT$8.4 billion (US$273.6 million) in cash.

The amount, which Mitsui Sumitomo agreed to pay for all of Mingtai's 220 million shares at NT$38.182 per share, is three times as much as the Taiwanese insurer's book value of NT$2.7 billion as of December, First Financial said in a statement.

Following the disposal of non-core assets, "we will be focusing on our core banking business as well as other relevant investment-trust and securities businesses," First Financial's acting chairman Chao Yuan-chi (趙元旗) said at the press conference yesterday.

First Financial acquired Mingtai through issuance of new shares worth NT$7.6 billion in 2003. The company could reap profits of around NT$800 million after obtaining approval from its shareholders on June 10 and later from the nation's Investment Commission, according to the company.

When asked how it plans to utilize the proceeds, First Financial's vice president Huang Hsien-chuan (黃獻全) said it could be used to expand the capital of its banking unit, but shied away from commenting on using the proceeds on a possible merger-and-acquisition (M&A) deal.

"It depends on how the chances for an M&A look in the future," Huang said.

Mingtai generated after-tax profits of around NT$250 million on revenue of NT$2.4 billion last year.

Citigroup advised First Financial on the sale.

"It is a good deal ... as First Financial gained NT$8.4 billion in cash while keeping the cross-selling benefit," said Du Ying-tzung (杜英宗), chairman of Citigroup Global Markets Taiwan Ltd.

Financial holding companies should focus on their core competence and profitability, Du said, adding that the profitability of property insurance is unstable owing to the unpredictable nature of calamities.

First Financial should place its emphasis on consumer and corporate banking, as well as wealth management, for future development, he said.

First Financial is the nation's first financial holding company to sell off its assets, which sparked speculation that the company is paving the way for a merger.

"This is very positive news for First Financial," said Mike Shiao (蕭光一), a fund manager at Invesco Taiwan Ltd (景順投信). "The Taiwan government is getting serious about consolidating the financial industry and this will spark more mergers."

President Chen Shui-bian (陳水扁) vowed last year to push forward the consolidation of the nation's crowded finance sector by halving the number of state-run banks to six by the end of this year and reducing the number of financial holding firms to seven from the current 14 by the end of next year.

The acquisition will also help increase Mitsui Sumitomo's revenue from its Asian business outside Japan by 50 percent to ?108 billion (US$1.02 billion), the Japanese insurer said in a separate statement.

"Taiwan's general insurance market is similar to that of Japan," said Takaaki Yamaguchi, a Mitsui Sumitomo spokesman in Tokyo. "Deregulation of the market is expected in 2008 and we can adapt our knowledge and technology to the region."
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