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Chinatrust Bank to become exclusive operator of lottery

Chinatrust Commercial Bank (中國信託商銀) yesterday received an early Christmas present as it outbid three rivals to become the exclusive lottery operator from 2007.

Chinatrust Commercial, the nation's sixth-largest lender by assets, offered to pay the Ministry of Finance NT$2.09 billion (US$62.85 million) per year, 10 times the floor price, and won the right to run the lottery business from Jan. 1, 2007, through the end of 2013.

The Bank of Kaohsiung (高雄銀行) offered NT$1.83 billion, while Taishin International Bank (台新銀行) made a NT$1.58 billion bid. The current operator, Taipei Fubon Bank (台北富邦銀行), offered NT$888 million per year.

"Considering shareholders' rights and interests, we will try our best not to lose money," said Jeffery Koo (辜濂松), chairman of the bank's parent company, Chinatrust Financial Holding Co (中信金控), the nation's sixth-largest financial group by assets.

The offer was made after prudent calculations based on a two-year-long examination of different business models that have been adopted in other countries, including Hong Kong, the UK and Norway, Chinatrust Financial chief strategy officer Lin Shiaw-pin (林孝平) said.

The bank estimates annual lottery sales to amount to between NT$80 billion and NT$100 billion, of which the operator can garner 4.35 percent, or up to NT$4.35 billion. The remainder will be used to pay out lottery winnings, reimburse distributors and contribute to public welfare funds, Chinatrust Commercial said.

The company's profit will be what remains after a NT$2 billion payment to the finance ministry and operating costs have been deducted from the NT$4.35 billion, Lin said in a statement yesterday.

Indirect benefits worth NT$200 million to NT$300 million can be expected from wealth-management services and non-interest cash deposits from distributors, he added.

The lottery is a kind of consumer product, and the bank is well-positioned to operate such a venture with its extensive know-how of managing financial products for consumers and in light of its track record of high profitability, Lin said. Bidding rivals appeared doubtful about the outlook for Chinatrust Commercial.

Richard Yang (楊瑞東), Taipei Fubon's vice president of lottery business, told the Central News Agency that the NT$2.09 billion winning bid was much too high and may lead to annual losses of NT$200 million.

Taipei Fubon will reportedly be able to reap a total profit of NT$3 billion from its five-year concession to run the nation's lottery business. The concession expires at the end of next year.

Financial analysts were less pessimistic about Chinatrust Commercial's prospects.

"We are positive about the deal ... and the hidden benefits it can bring," said a fund manager who tracks Taiwan's financial sector and helps manage a NT$1.2 billion portfolio at Invesco Taiwan Ltd.

Chinatrust Financial posted pre-tax income of NT$20.2 billion, or NT$2.8 per share, for the first 11 months of this year. Shares yesterday closed marginally higher, gaining 0.97 percent to NT$26.05 on the Taiwan Stock Exchange.
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