First Financial Holding Co (第一金控) and Chang Hwa Commercial Bank (彰化銀行) could be suitable matches for Mega Financial Holding Co (兆豐金控), as financial authorities push for mergers among state-controlled companies, JPMorgan Securities Ltd said yesterday.
The two state-run companies would be a more attractive proposition than those floated by financial authorities, as they would be less of a drag on Mega Financial’s return on equity and capital position, and could promote “better synergies potentially associated with branch consolidation,” JPMorgan Securities analysts led by Jemmy Huang (黃聖翔) said in a report.
In January, Financial Supervisory Commission Chairman William Tseng (曾銘宗) said Mega Financial — which owns Mega International Commercial Bank (兆豐商銀) — stood a better chance than other state-run financial firms of becoming a regional player capable of competing with other Asian players such as Singapore’s DBS Bank and Malaysia’s MayBank given its longer and wider international exposure.
Minister of Finance Chang Sheng-ford (張盛和) said in February that First Financial or Taiwan Cooperative Financial Holding Co (合作金控) could be potential merger targets for Mega Financial.
First Financial is the owner of First Commercial Bank (第一銀行), while Taiwan Cooperative Financial runs Taiwan Cooperative Bank (合作金庫銀行).
“The consolidation, if it happens, could be a long-term positive for the sector to solve the [problem of] overbanking,” JPMorgan said in the report.
A merger could enhance Mega Financial’s New Taiwan dollar funding structure on top of its strong US dollar funding franchise, the report said.
However, an increasing concentration on domestic operations could mean lower profitability for Mega Financial, while reducing its focus on non-interest income might impact on its future revenue diversification, the report added.
Other risks include the willingness of state banks’ labor unions to support the merger amid concerns over job security and the risk of the government making unrealistic promises to push the merger through, which might limit Mega Financial’s flexibility and room to improve its operating efficiency, the brokerage said.
In addition, any merger talks with Hua Nan Financial Holding Co (華南金控) or Chang Hwa Bank could increase the complexity of discussions, because both Hua Nan and Chang Hwa have dominant private shareholders, JPMorgan added.