GE Consumer Finance, the consumer lending unit of General Electric Co, announced yesterday that it would acquire a 24.9 percent stake in smaller local lender Cosmos Bank (
"This partnership gives GE Consumer Finance the opportunity to execute our growth strategy in Asia by gaining a significant platform from which to expand in Taiwan," Yoshiaki Fujimori, President and chief executive officer of GE Consumer Finance Asia, said in a statement released yesterday.
The deal is to be done in two stages with GE Consumer Finance first buying a 10 percent stake in Cosmos through a share subscription of 197 million common shares for US$86 million in the second quarter, according to Cosmos.
The US finance company would then acquire the remaining 14.9 percent stake through a convertible bond structure within the next four years, the bank said.
The partnership will make GE Consumer Finance the single largest shareholder of Cosmos, the 24th-largest lender out of 46 local banks, with two representatives on the bank's 11-seat board.
The two parties will share the management of the bank through a joint-management committee and place senior executives to assist in managing day-to-day operations, GE Consumer Finance said.
Cosmos will hold a shareholders meeting to approve the strategic alliance on April 19, the bank said in a filing to the Taiwan Stock Exchange yesterday.
The government has been pushing consolidation of the nation's fragmented banking sector, hoping to have at least one local bank be run by overseas investors, in a bid to sharpen local banks' competitiveness against foreign rivals.
The strategic alliance is a mutually beneficiary deal, as GE Consumer Finance can get channels in Taiwan, the fourth largest consumer finance market in Asia, while Cosmos can gain the US partner's advanced risk management know-how and new product design capabilities, Cosmos spokesman Shih Kung-liang (施坤良) said, adding that the bank planned to roll out new consumer financial products later this year in cooperation with its US counterpart.
Cosmos will utilize the funds paid by GE Consumer Finance to improve its capital structure by raising the capital adequacy ratio to 13 percent from the current 9.9 percent, the executive said.
Cosmos is the nation's largest cash-advance card issuer, with 868,772 cards in circulation as of November last year, according to statistics of the Banking Bureau. The lender's overall bad loan ratio is 4.11 percent, higher than the industry's 2.61 percent on average, the figures showed.
The bank's relatively high bad-loan ratio and mounting consumer debt did not seem to worry GE Consumer Finance, as the US company simply said it will form a task force to assess and address such issues.
Last July, the Fair Trade Commission approved GE Consumer Finance's acquisition of up to a 49 percent stake in the bank.
Boosted by the foreign partnership, Cosmos shares yesterday gained 4.61 percent to close at NT$14.75 on the local bourse.
The bank generated NT$920 million, or NT$0.52 per share, in pre-tax income last year.