Thu, Oct 19, 2006 - Page 12 News List

Financial experts slam legal flaws

By Jackie Lin  /  STAFF REPORTER

Taiwan's flawed legal system and a changeable attitude on the government's behalf are the major reasons behind the recent array of financial merger controversies and scandals, banking experts said yesterday.

The financial sector has been clouded recently with the news that high-level officials from Chinatrust Financial Holding Co (中信金控) have been implicated in its illegal investment in Mega Financial Holding Co (兆豐金控), and that Taishin Financial Holding Co (台新金控) recklessly attempted to push through its merger plan with Chang Hwa Commercial Bank (彰化銀行).

"Taiwan's financial laws and regulations are far from perfect and have numerous loopholes. Add that to the government's inexperienced approach to carrying out financial reform and the consequences are now appearing," said Tang Ming-je (湯明哲), a professor of international business at National Taiwan University, during a public hearing held at the legislature.

In the case of Taishin Financial winning the bid to acquire Chang Hwa's 22 percent stake last year, the academic said the government should have evaluated the bidders' offers comprehensively, rather than deciding the winner simply based on the price that was offered at the first stage.

Such shortsighted measures gave rise to the disagreements between Taishin Financial and the government that took place last week over whether Taishin Financial could merge with the smaller Chang Hwa via a share swap, he said.

Independent Legislator Lin Pin-kun (林炳坤), however, questioned the walkout of the government-appointed directors during Chang Hwa's board meeting last week when Taishin Financial-appointed directors planned to discuss the share-swap issue.

Lin said the government representatives should have remained in the boardroom to express their opinions even though the issue was not included on the meeting's agenda.

His comments drew suggestions from several of the attendees that it was the responsibility of the Taishin Financial-appointed directors to refrain from participating in the share-swap discussions to avoid a conflict of interest.

Taishin Financial, the nation's second-largest credit card issuer, holds a 25 percent stake in and controls eight of the 15 board seats of Chang Hwa. The Ministry of Finance has an 18 percent stake and four board seats.

Citing Article 18 of the Company Merger Law (企業併購法), George Lin (林繼恆), a lawyer at Lin & Partners (恆業事務所), said board directors are entitled to use their voting power in merger discussions.

He added that the Ministry of Economic Affairs in 2002 issued an explanation, saying the abovementioned regulation do not apply to discussions of share swap ratios.

Such unclear legislation thus creates a gray area as to whether the board directors should leave the boardroom during share swap ratio discussions, Lin said.

He also urged the nation's financial regulator, the Financial Supervisory Commission (FSC), to make good use of its administrative powers of punishment to help curb financial irregularities, such as allowing transgressors opportunities to make a defense in public hearings before meting out due punishments.

This would also produce an effective intimidation to maintain order in the industry, he added.

His suggestions were welcomed by FSC Chairman Shih Jun-ji (施俊吉), , who said the regulator would consider adopting the measures.

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