Standard deal cuts into niche business

Standard Chartered PLC's acquisition of a Taiwan bank, the first by an overseas investor, helps the company in "connecting the dots" on its Greater China strategy, its head of operations in Taiwan said.

"You've got 2 million people living in China," said the company's Taiwan chief executive, Jim McCabe, in Taipei this month, referring to Taiwanese living in China. "I like the position we're in. I like what we can do."

London-based Standard Chartered's US$1.2 billion purchase of Hsinchu International Bank (新竹國際商銀) may boost growth in two markets: Taiwan and China. It added 83 branches to its existing three on the island to expand wealth management services while gaining access to Hsinchu's list of clients, who may need bank services in China to support operations there.

The Taiwanese across the strait are beyond the reach of the nation's banks, which aren't allowed to open branches in China. Clients abroad often must turn to Chinese banks for wealth management advice or loans.

McCabe, in his first media interview, declined to comment on who the bank's clients are or how many operate in China. The Hsinchu industrial park, near one of Standard Chartered's two main offices in Taiwan, is the cradle of technology companies such as Taiwan Semiconductor Manufacturing Co (台積電) and Wistron Corp (緯創).

"At least half of the companies in the industrial park have factories in China," said Steven Chen (陳智誠), an analyst with Taiwan Ratings Co (中華信評). "The acquisition allows Standard Chartered to expand trade-related business," such as for settling international payments, with the nation's smaller firms.

Taiwan's companies and individuals are the biggest investors in China, having poured US$150 billion into the country. Quanta Computer Inc (廣達電腦), Compal Electronics Inc (仁寶電腦) and Wistron, the world's largest contract makers of notebook computers, make "nearly 100 percent" of their computers in China, said Huang Ji-shih (黃吉實), the top statistician at the Ministry of Economic Affairs.

"By focusing on the small and medium-sized companies in China, Standard Chartered is cutting into a niche business area where Taiwanese banks are totally absent," said Sherry Lin (林淑娥), Hong Kong-based director of equity research at Credit Suisse.

The bank said yesterday its global first-half profit rose 26 percent as its China revenue doubled. Standard Chartered will have 40 branches in China by the end of this year, up from 30 now, McCabe said. The bank also plans to add more than 1,000 workers, giving it 3,500 in China by the year's end.

China offers better prospects for lending growth. Banks in China extended 2.5 trillion yuan (US$330 billion) in new loans in the first six months, 14.7 percent more than a year earlier. That's almost five times the 3 percent loan growth of Taiwan's banks in the first quarter.

Taiwan has more than 40 local banks, 30 foreign banks and hundreds of grassroots lenders serving 23 million people, resulting in fierce competition for customers for almost every kind of financial service, from credit cards to mortgages.

"The challenge in Taiwan is the fact that the natural consolidation that has taken place globally in the banking industry has been late here in Taiwan," said McCabe, 54, who was chief executive of Standard Chartered in the Americas before assuming the Taiwan post last September.