Cathay Financial wins bid for CUTIC

Cathay Financial Holding Co (國泰金控) yesterday won a bid to take control of China United Trust and Investment Corp (CUTIC, 中聯信託), thus strengthening its banking business in the Taipei area.

Cathay United Bank (國泰世華銀行), the banking unit of Taiwan's largest financial group, will receive NT$12.9 billion (US$396 million) in compensation from the Financial Restructuring Fund, in addition to an unspecified amount the bank offered to bid CUTIC's assets, liabilities and operations of the "good bank" part of CUTIC, which was taken over by the government in March.

The bid for the NT$17.1 billion "bad bank" part of CUTIC was won by Malaysia-based FC Capital management Co with NT$2.7 billion, the state-run Central Deposit Insurance Corp (CDIC, 中央存保) said.

CDIC will sign the contracts with the two bidders on Friday, it said.

"Many analysts said the deal is too expensive, but considering CUTIC's asset quality and the location of its branches, we are confident it is the right price," Lee Chang-ken (李長庚), chief strategy officer at Cathay Financial, told a press conference.

CUTIC has NT$32.24 billion in loans, NT$61.52 billion in deposits and total assets of NT$49.18 billion. Its non-performing loan ratio is 0.2 percent, much lower than some problematic banks that saw their ratio exceed 10 percent, Lee said.

CUTIC's real estate holdings, including land and buildings, also have considerable value-added potential, Lee said.

Cathay Financial valuations showed the estimated added value of the real estate is more than 10 percent of Cathay United's offer.

Adding the NT$12.9 billion to CUTIC's net value of minus NT$20.3 billion, Cathay United would still lose NT$7.4 billion in the takeover. CUTIC has 15 branches and a license to open five more -- meaning that Cathay will be paying NT$370 million for each branch.

The acquisition will increase Cathay United's branches in the Taipei region, Lee said.

The bank intends to relocate four branches to the Taipei area, as well as open the remaining five in Taipei to achieve higher margins, Lee said.

Of the 140 branches nationwide, Cathay United has 65 in Taipei City and county, where yields are higher than in other regions, he said.

Lee said that following the takeover, the 15 branches could break even in one or two years, while the unopened five could become profitable in three or four years.

Cathay United hopes to complete the takeover by the end of this year, Lee said.