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FSC urged to focus on state-run banks

The nation's financial regulator has recently offered a slew of new measures to make hostile takeovers in the financial industry easier, but industry watchers said the government should push mergers among state-run lenders as a priority.

Last Thursday, the Financial Supervisory Commission agreed that financial holding companies can buy an initial stake of 5 percent in a targeted company, within one year after obtaining the commission's approval. The purpose of the measure is to allow financial holding companies to gain access to potential targets to better understand them before inking a final acquisition deal.

In the past, the financial holding companies have been required to purchase at least a 25 percent stake before taking over a targeted firms.

The commission's vice chairperson, Susan Chang (張秀蓮), said the relaxation means that authorities will not prevent financial holding firms from pursuing hostile takeovers.

In addition, financial holding companies that meet six stricter requirements -- such as having a non-performing loan ratio below 2.5 percent (inclusive of loans under observation) and with 20 percent of total loans made to small and medium enterprises -- will gain access to an automatic approval mechanism for hostile takeovers, Chang said.

Under this scenario, six out of the nation's 14 financial holding companies are currently qualified to obtain automatic approval for hostile takeovers, Chang said.

These six include First Financial Holding Co (第一金控) and Mega Financial Holding Co (兆豐金控), she added.

The commission's relaxation measures come at a time when some of the segment's heavyweight players, like Cathay Financial Holding Co (國泰金控) and Fubon Financial Holding Co (富邦金控), have strongly urged the authorities to help facilitate consolidation in the financial industry.

"We affirm the change," Cathay Financial's chief strategic officer Lee Chang-ken (李長庚) said.

"The relaxation meets our needs ? and will surely be helpful in pushing consolidation," Lee said, adding that financial holding companies have previously been hesitant toward mergers over concerns they might waste time and capital if the deal failed under the old stricter regulations.

The commission has not only opened the door wider for acquisitions by domestic financial firms but also for foreign players to acquire local lenders.

Last month, the commission announced that foreign financial holdings can own more than a 25 percent stake in local financial institutions, and ultimately can take over management.

The move has won the praise of overseas financial players.

Peter Chan (陳劍鋒), co-chair of the capital markets committee at the American Chamber of Commerce in Taipei, said it could help internationalize Taiwan's finance sector.

Chan is also general manager of GE Commercial Finance, an affiliate of GE Capital Corp, which reportedly is interested in investing in Taiwan's largest cash-advance card issuer, Cosmos Bank Taiwan (萬泰銀行).

Chan declined to comment on a potential deal with Cosmos, saying that US headquarters should speak to the matter.

If the deal goes forward, it could make GE the first foreign financial institution to directly operate a business in Taiwan.

Nevertheless, market watchers seemed unimpressed by the commission's efforts, saying that achieving the consolidation goal hinges on the Ministry of Finance, which has to speed up its sale of state-controlled banks.

"The ministry has to hurry up and get rid of government-controlled stakes by releasing appealing targets like First Financial, which has considerable assets and a strong performance, to lure interested private financial holdings, such as Cathay and Fubon ? in a bid to hit their policy target on time," said Chu Yu-chun (朱玉君), a finance sector analyst with SinoPac Securities Corp (建華證券).

The ministry's efforts to boost industry consolidation suffered a setback after Chang Hwa Commercial Bank (彰化銀行) failed to finalize its global depository receipt (GDR) offering, which had been intended to bring in foreign strategic partners. As well, a privatization plan for the Central Trust of China was blocked last month in the legislature amid concerns over protecting its employees.

To expedite privatization in the finance sector, Jesse Wang (王嘉樞), head of research with BNP Paribas Securities Taiwan Co, suggested the ministry sell off its stakes at one time in a grand auction, which would attract both local and foreign investors.

"They all understand that if they miss the chance, they will fall significantly behind in the consolidation game," he said.
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