A government review of industry consolidation in the financial sector initiated by former president Chen Shui-bian (陳水扁) in his second term said that civil servants were “hasty and indiscreet” during the administration process.
The investigative report, released late on Friday night, said irregularities in some of the bank mergers had resulted in distortion of the consolidation intended to enhance the competitiveness of the financial sector.
The report concluded that the goal of reducing “the number [of financial sectors] to a certain amount within a given time” set by Chen was to blame for the ensuing disputes over the banking restructuring program.
The government will therefore take different approaches to advance bank mergers in view of the allegations of bribery against the former first family and allegations of selling state assets for the benefit of enterprises during the consolidation process, said the report, co-authored by the Ministry of Finance and the Financial Supervisory Commission (FSC).
Under Chen’s second term as president, starting in 2004, he set four goals for the consolidation known as “second-stage financial reform” — halving three financial institutions with individual market shares of at least 10 percent by the end of 2005, halving the number of state-owned banks to six by the end of 2005, halving the number of financial holding companies to seven by the end of 2006, and having at least one domestic financial institution operated by a foreign entity or listed overseas by the end of 2006.
“We did not find irregularities or dereliction of duty involving civil servants through documents reviews,” Minister of Finance Lee Sush-der (李述德) said on Friday night, adding that what these civil servants had done was to achieve the policy goal set by Chen.
Officials were held responsible for the alleged scandal in the report. Lee referred to them as members of a task force under the Executive Yuan composed of the then vice premier and other high-level economic and finance officials.
Lee said the government had already sent some problematic cases to the judiciary and the Control Yuan for further investigation and would continue to send others for investigation to ensure accountability.
Despite the alleged scandals, Lee said the government would continue to push for consolidation in financial sectors to resolve the problems of too many banks, low profitability, insufficient innovation to create globally competitive banking institutions amid the international tendency towards large-scale organization of banks.
“We will not set the goals of the number of financial institutions, nor will we set a timetable to achieve the goal. The approach we will adopt is to respect market mechanisms and make sure that the consolidation is conducted in a public and transparent way,” Lee said.
The ministry will hereafter enhance the management of state-owned shares by ensuring the number of board seats is proportional to the percentage of state-owned shares which affects the appointments of a company’s executive officers, he said.
Problematic mergers and acquisitions mentioned in the report were the deal between Taishin Financial Holdings Co (台新金控) and Chang Hwa Commercial Bank (彰化銀行) in 2005, China Development Financial Holding Corp (中華開發金控) raising its stakes in Taiwan International Securities (金鼎證券), the board directors re-election in Mega Financial Holding Co (兆豐金控) in 2006 as well as two board re-elections in China Development Financial and Hua Nan Financial Holdings Co (華南金控) in 2007.
Overall, the mergers and acquisitions during Chen’s second term had exposed 12 flaws in financial regulatory laws, according to the report.
FSC Chairman Sean Chen (陳冲) said on Friday that the commission had amended some regulations and would continue to revise others to prevent similar abuses.
One of the revisions was the amendment to the Insurance Act (保險法) aimed at closing the loophole whereby financial groups could launch takeovers for rivals by leveraging their insurance arms’ investment, Chen said.
The amendment, which passed the legislature in July, bans insurers from sitting on the board of a firm in which they have an investment or from supporting members of affiliated companies becoming directors or supervisors at such firms.
It came because of the ownership battle in China Development Financial, in which Chinatrust Financial was widely criticized for utilizing the working capital of affiliated China Life Insurance Co (中國人壽) while taking control of China Development Financial.
The government will propose a comprehensive financial reform plan aimed at turning the country into the Asia-Pacific Financial Center, Vice Premier Paul Chiu (邱正雄) said yesterday.
“After reviewing the problems in financial mergers and acquisitions, the FSC is now planning a program calling for the development of a fund-raising center and asset management center for the Asia-Pacific region in Taiwan,” Chiu said by telephone.
In response, companies named in the report denied yesterday of any wrongdoing.
Former minister of finance Lin Chuan (林全) also held a press conference to refute the report.
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