MOF under attack for its shareholding management

The Ministry of Finance's passive attitude toward defending the state's shareholdings in Mega Financial Holding Co (兆豐金控) has sparked intense criticism from the media and lawmakers in the past week.

The company is scheduled to hold a general meeting tomorrow and elect its board of directors.

Minister of Finance Joseph Lyu's (呂桔誠) refusal to clarify the ministry's position has created suspicion that an "invisible hand" is interfering in financial matters.

The government controls a 22.78 percent stake in Mega Financial, making it the biggest shareholder in the nation's third-largest financial services provider, which has NT$2.1 trillion (US$65 billion) in assets.

After securing eight seats on the lender's 15-member board, in 2003 the government backed Cheng Shen-chih (鄭深池), who represents private shareholders and is said to have close ties with President Chen Shui-bian (陳水扁), for chairman. At the time it believed it could gain control of the board because it held a majority of seats.

The ministry's approach was attacked by lawmakers, who accused Cheng of intending to ignore the government's supervision.

Last November the legislature's Finance Committee passed the so-called "Cheng Shen-chih clause," which said that if the government holds more of a financial institution's board seats than private shareholders, it cannot back a private representative to head the board.

Chinese Nationalist Party (KMT) Legislator Alex Fai (費鴻泰) said yesterday that the clause had had an effect opposite to the one intended, as demonstrated by what he called the finance ministry's "tricky" strategies.

On Monday, the ministry's Government Shareholding Management Unit said the government has acquired support from foreign shareholders, whose stake holding in Mega Financial has increased from 4 percent three years ago to 23 percent. It said foreign investors had agreed to take two board seats, with one supporting the government and the other serving as the independent director.

This would mean the ministry controls seven seats, while private shareholders -- including Chinatrust Financial Holding Co (中信金控) and sports shoemaker Pou Chen Corp (寶成工業) -- hold the remaining seven.

If neither party gains a majority, the independent director would play a crucial role in making decisions, including personnel appointments and investments.

Fai slammed this arrangement as a scam designed to help Cheng stay on as chairman while the ministry relinquishes its control over the board.

A finance professor who refused to be named said the battle for seats shows signs of political influence because Cheng only holds a 0.0085 percent share in the lender.

"The more shares a company chairman owns, the more shareholder benefits are gained. But now the situation is reversed," the professor said.

There is no reason for the government to continue supporting Cheng while providing Chinatrust Financial with opportunities to deepen its influence over the board, he said.

Steven Sun (孫屏城), chairman of Chiao Tung Bank Industrial Union (交通銀行產業工會), also questioned the government's efforts to control Mega Financial.

"This is a free market mechanism and the government could have increased its shareholding to avoid all the present hassles. With a 22.78 share, how can the ministry dream of controlling the board?" he asked.