Chinatrust announces plan to buy Mega stake

Chinatrust Financial Holding Co (中信金控), the nation's sixth-largest financial group, announced yesterday that it will buy as much as a 10 percent stake in its bigger rival, Mega Financial Holding Co (兆豐金控), the second largest financial holding firm in Taiwan, within the next 12 months.

The Financial Supervisory Commission, which approved the investment earlier this month, said yesterday that Chinatrust Financial planned to spend NT$27.5 billion (US$848.24 million) to acquire Mega shares on the open market.

Mega Financial boasts a bright outlook for strong profitability on the strength of its issuance of a cash dividend exceeding NT$1.5 per share for the past two years, and its leading position in a variety of businesses, including corporate finance, venture capital and overseas operations, Chinatrust Financial said in a statement released yesterday.

"We will hold Mega Financial shares as a long-term investment," Chinatrust Financial chief financial officer Perry Chang (張明田) said when making the announcement at the Taiwan Stock Exchange yesterday.

Chang, however, declined to elaborate on whether Chinatrust Financial would keep increasing its investment to attain a controlling stake in Mega Financial after completing the first-stage share purchase.

In response, Mega Financial Spokesman Joseph Shieh (謝劍平) said that the company respected the rights of any investor who wishes to become a shareholder of the financial group.

Mega Financial had no advance knowledge of its smaller rival's intentions, Shieh said.

"We are positive about the deal," said Jesse Wang (王嘉樞), head of research at BNP Paribas Securities (Taiwan) Co, which tracks the nation's finance sector.

Chinatrust Financial's move would facilitate smoother and faster financial consolidation than the government had expected, he added.

The financial group could gain synergy by expanding its scale of economy and getting seats on the board of Mega Financial through the investment, Wang said.

Wang expected Mega Financial share prices to soar while Chinatrust Financial shares may weaken in the short run.

Mega Financial is expected to generate earnings of NT$23 billion, or NT$2.4 per share this year, while Chinatrust Financial could see marginal growth in earnings at NT$16.8 billion, or NT$2.3 per share, this year.

Mega Financial shares remained unchanged at NT$21.35, while Chinatrust Financial closed down 1.45 percent at NT$27.15 on the Taiwan Stock Exchange yesterday.

Mega Financial, which has two banking units -- the International Commercial Bank of China (中國國際商銀) and Chiao Tung Bank (交通銀行) -- that are slated to merge next year, plans to acquire a 26-percent stake in state-controlled Taiwan Business Bank (台灣企銀) by the end of the current quarter. This is in keeping with the government's bid to cut the number of state-controlled banks.

The government has vowed to consolidate the nation's financial sector and aims to halve the number of financial holding firms to seven by the end of this year as part of its second-stage of financial reforms.