Yuanta Financial Holding Co (元大金控) shares gained 2.24 percent yesterday, outpacing the TAIEX’s 0.85 percent increase, after its securities arm announced plans a day earlier to acquire a small competitor as part of a sustained bid to cement its leadership in the local market.
The board of Yuanta Polaris Securities Co (元大寶來證券) approved plans on Tuesday afternoon to buy Taipei-based Ding Fu Securities Co (鼎富證券) for NT$482 million (US$16.3 million), making Ding Fu the first casualty of the capital gains tax proposal amid falling stock market turnover.
The nation’s 86 securities houses, which operate about 1,200 outlets with 50,000 employees, need a daily stock market turnover of at least NT$80 billion to break even, Fitch Ratings Taiwan said in a report last month.
Securities houses, especially those reliant on their brokerage business for income and with a market share of less than 1 percent are more vulnerable to stock market downturns, said Sophia Chen (陳怡如), Fitch’s analyst on financial institutions.
In the past few months the trading volume has slumped below the daily average of NT$85 billion seen in 2001 when the technology bubble burst, Chen said.
Established in 1998 with paid-in capital of NT$320 million, Ding Fu specializes in brokerage operations, company data showed. It has 117 employees and a market share of 0.275 percent.
Yuanta Polaris Securities, Taiwan’s largest brokerage by market share, will gain two extra brokerage outlets in downtown Taipei from the purchase, boosting its total to 191, the brokerage said in a stock filing on Tuesday.
“The acquisition will generate sizable interest income, as Ding Fu’s margin loans averaged NT$2.34 billion last year, accounting for 0.73 percent of the market,” Yuanta Financial spokesman Chuang Yu-de (莊有德) said.
Lenders charge higher interest rates for margin loans.
Another brokerage, SinoPac Securities Co (永豐金證券), the securities unit of SinoPac Financial Holdings Co (永豐金控), is reportedly in acquisition talks with Pacific Securities Co (太平洋證券), local Chinese-language media said.
SinoPac Financial spokesman Michael Chang (張晉源) declined to confirm the deal, but added the conglomerate welcomes any opportunity to boost the securities unit’s economies of scale.
“We would like to raise the brokerage subsidiary’s ranking from fifth place to the top three,” Chang said by telephone. “To that end, SinoPac Securities needs to increase its market share from the current 5 percent to more than 6.5 percent … We can achieve the goal through organic growth, acquisition or both.”
Chang also refused to comment on reports that SinoPac Securities had offered to buy Pacific Securities for NT$3 billion and that the respective boards would give the go-ahead in meetings tomorrow.
“The board is to meet on Friday, but I’m not sure of the agenda,” he said.
Winson Wang (王榮旭), a stock analyst at Marbo Securities Consultant Co (萬寶證券投顧), said he would not be surprised if more brokerages opt to pull out of the market amid trading volumes lower than during the global financial crisis of 2008.
“The capital gains tax plan definitely contributed to the weak sentiment, although the European debt problem is the main drag,” Wang said.