Cathay Financial denies plans to buy Chinfon

Cathay Financial Holding Co (國泰金控), the nation's biggest financial services provider, denied it planned to acquire the debt-ridden Chinfon Commercial Bank (慶豐銀行), a company filing to the Taiwan Stock Exchange said yesterday.

Lee Chang-ken (李長庚), Cathay Financial's spokesman and chief strategy officer, earlier told the Bloomberg Newswire that he ``hadn't heard about'' plans to buy the privately owned lender.

The Chinese-language Econo-mic Daily News said in a front-page story yesterday that Cathay's board would meet on Dec. 31 to approve the purchase of Chinfon's assets and liabilities at NT$1.8 per share.

The report said the acquisition would add 36 branches to Cathay Financial's existing local network of 161.

In October, Cathay Financial said it wanted to increase its network to more than 200 branches nationwide after it won a government auction to take control of China United Trust and Investment (中聯信託), which has 15 branches and a license to open five more.

Commenting the news, SinoPac Securities Corp (永豐金證券) considered the reported acquisition price "reasonable," the Taipei-based brokerage said in a note to its clients yesterday.

But "we are neutral on the news and will closely monitor the following progress," SinoPac said.

Shares Cathay Financial rose 0.15 percent to close at NT$66.2 yesterday, underperforming a 0.39-percent rise in the benchmark TAIEX index. Chinfon is not a listed company.

Chinfon seen its capital base decline significantly in the first three quarters of the year, making it increasingly difficult to meet the regulatory adequate capital requirement should no new capital injection materialize in the next few months.

The Taipei-based lender's capital adequacy ratio -- which measures a bank's financial strength by dividing its assets by its capital -- has dropped below the mandatory 8 percent since the fourth quarter of last year. The ratio declined to 1.25 percent at the end of September from 9.21 percent a year earlier, according to Financial Supervisory Commission's (FSC) statistics released yesterday.

At the end of October, the bank reported NT$91.48 billion (US$2.18 billion) in total deposits and NT$64 billion in outstanding loans, falling from NT$93.33 billion and NT$66.28 billion respectively in the previous month, the commission's figures showed.

The bank's bad loans increased to NT$14.4 billion in October or a non-performing loan (NPL) ratio of 22.5 percent, from NT$14 billion or a NPL ratio of 21.19 in September, the same data showed.

Chinfon's value declined to NT$866 million at the end of October from NT$1.44 billion in September, while its losses expanded to NT$4.96 billion from NT$4.4 billion during the same period, according to the government data.

The FSC has set a month-end deadline for Chinfon to raise fresh capital to improve its financial condition.

FSC's Susan Chang (張秀蓮) said last night a local financial holding company, not Cathay Financial, was interested in the bank, although the details remained unclear.

Chinfon be under government supervision and taken over by the state-run Central Deposit Insurance Corp (中央存保) if the lender fails to meet the regulator's recapitalization deadline.