Latest bank merger does not make sense: analysts

With only limited possibilities for synergy, the proposed merger of the Bank of Taiwan (台灣銀行) with the smaller, state-run Central Trust of China (中央信託局) has been the result of political manipulation, rather than market forces, industry watchers said yesterday.

"They want to merge just for the sake of merging. It makes no sense theoretically," said Thomas Lee (李桐豪), professor of money and banking at National Chengchi University.

The Ministry of Finance announced on Thursday night that the Cabinet has approved the integration of these two 100-percent state-owned banks. The Bank of Taiwan will be the surviving entity, remaining the nation's largest bank, with combined assets of about NT$3 trillion (US$90 billion).

The two banks' directors approved the merger at their respective board meetings yesterday afternoon.

The planned merger will give the Bank of Taiwan a market share of 11.59 percent, compared with the 9.77 percent share Taiwan Cooperative Bank (合庫銀行) and Farmers Bank of China (農民銀行) will have after their merger. Taiwan Cooperative agreed earlier this month to buy Farmers Bank for about NT$16 billion in stock. The deal will take effect on May 1.

Lee said the latest merger would not be able to reduce operational costs, as the Bank of Taiwan has already achieved an economic scale.

Standard & Poor's Ratings Services kept its ratings on the Bank of Taiwan unchanged, with a long-term rating of "A+" and a short-term rating of "A-1," according to a report issued yesterday.

"Although Central Trust's financial profile is weaker than that of Bank of Taiwan, any merger is unlikely to have a significant negative impact on Bank of Taiwan's financial profile, as Central Trust is comparatively small," the report said.

Taiwan Ratings Corp (中華信評), a local arm of S&P, held a similar view. It placed its "twAA/twA-1" ratings on Central Trust on CreditWatch with positive implications yesterday.

Explaining the details in a press conference yesterday afternoon, Minister of Finance Lin Chuan (林全) said the government has no choice but to choose the second-best option after Central Trust employees and the legislature's Finance Committee strongly opposed the original separate-sale scheme to auction off Central Trust's banking and insurance units.

"Central Trust's case cannot be delayed infinitely, as employee morale is eroded and business expansion has stagnated," Lin said.

In the wake of news of the merger, Central Trust's employees union has withdrawn from a meeting with workers at the International Commerce Bank of China (ICBC, 中國國際商銀) and First Financial Holding Co (第一金控) to vote on strikes today.

Bank of Taiwan chairman Joseph Lyu (呂桔誠) said that the merger deal will bring about significant synergy resulting from their complementary business activities, extensive distribution networks and resource-sharing.

However, their arguments failed to convince analysts, who prefer integrations between private banks and state-controlled players to maximize operational efficiency.

Wang Chien-ming (王建民), an analyst at Capital Securities Corp (群益證券), said the deal will neither cause too much change in the financial sector nor boost the stock market, as "it only increases marks for the government's reform policy."

As the government now needs to dispose of one more state-controlled financial institution before the end of the year in accordance with its consolidation goals, Lin remained close-lipped as to which bank or financial holding company will be next.