Fri, Sep 08, 2006 - Page 12 News List

FSC takes steps to bolster Taiwan's financial market

By Amber Chung  /  STAFF REPORTER

The Financial Supervisory Commission said yesterday it would require financial holding firms that fail to meet their takeover investment plans to offload the holdings they have acquired in targeted entities, as part of its efforts to amend regulations to maintain development of the domestic financial market.

These changes were made in compliance with the consensus reached in a national economic conference in July, which formed part of the government's efforts to consolidate the fragmented banking sector.

The new regulations could impact on financial groups such as Mega Financial Holding Co (兆豐金控), the nation's third-largest financial holding firm by assets, which appeared indecisive about its investment in Taiwan Business Bank (台灣企銀).

Financial holding companies that apply to invest in other financial institutions will now be required to submit a backup plan proving their ability to purchase a regulatory controlling stake of 25 percent within a reasonable period, the commission's spokesperson Susan Chang (張秀蓮) told a press conference yesterday.

Companies will also be required to elaborate on how they will offload their shareholdings if their investment plans fail, Chang said.

Financial groups who fail to follow their proposed exit schemes without a good reason will face difficulty in obtaining the financial regulator's approval for their future expansion plans, the official added.

"We will ask Mega Financial to explain if it cannot fulfill its approved investment plan in the timeframe it proposed," Chang said.

State-controlled Mega Financial applied in December last year to buy up to a 26 percent stake in smaller state-controlled rival Taiwan Business Bank.

The financial group, which now holds a 14.38 percent stake in Taiwan Business Bank, seems reluctant to increase its holdings, citing the lender's poor asset quality.

Meanwhile, the commission has also sought to decrease the likelihood of hostile takeovers by strengthening its investment review process.

Financial groups will be required to formulate response plans to be implemented in the event that targeted companies resist their takeover attempts, according to the revamped regulations.

Chang said the commission now tends to discourage hostile acquisition activities.

The amendment was inspired by the dispute that arose as a result of China Development Financial Holding Corp's (中華開發金控) hostile takeover bid for Taiwan International Securities Corp (金鼎證券), the commission said.

Other regulatory changes included that, from now on, financial holding firms will not be allowed to assign insiders -- such as major shareholders, board directors or family members -- ?to serve as board directors or supervisors of their invested rivals, unless the firms hold more than a 25 percent stake or enjoy a majority on the board of those rivals.

In addition, the financial regulator is unlikely to approve investment plans of financial holding firms whose major shareholders or board directors mortgage over 50 percent of their shareholdings.

This change was inspired by Chinatrust Financial Holding Co's (中信金控) controversial investment in Mega Financial. Up to 98 percent of Chinatrust Financial Chairman Jeffery Koo's (辜濂松) holdings were used as collateral for loans, Taiwan Stock exchange data showed.

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