CTBC Financial Holding Co (中信金控)shares rose yesterday on media reports that it had agreed to buy a Japanese bank for ￥52 billion (US$527 million), giving the Taiwanese company a foothold in the world’s third-largest economy.
While the company denied it had reached a deal with Tokyo Star Bank Ltd’s major shareholders, there is no doubt that CTBC is interested in tapping the Japanese market and that it has ample cash on hand for a potential acquisition, analysts said.
However, the question is whether the purchase of relatively small Tokyo Star could help CTBC Financial develop its wealth-management business or regional banking services in Japan, they said.
In Taipei trading, CTBC shares closed 1.54 percent higher at NT$19.75, compared with the broader market’s 0.17 percent decline.
The stock — which climbed as much as 1.8 percent to NT$19.8 in the morning session — has advanced 15.16 percent so far this year. That is higher than a rise of 5.84 percent on the benchmark TAIEX and an increase of 14.81 percent on the financial and insurance sub-index over the same period, Taiwan Stock Exchange data showed.
On Thursday, both Reuters and Bloomberg reported that CTBC had reached a deal with Lone Star Funds of the US and other major shareholders in Tokyo Star, such as Shinsei Bank Ltd and Credit Agricole SA, to buy their stakes in the bank, making it the first takeover of a Japanese lender by a overseas bank.
CTBC, known as Chinatrust before it renamed itself late last month, yesterday continued to dismiss such reports as market speculation, according to a filing to the Taiwan Stock Exchange.
In May, CTBC president Daniel Wu (吳一揆) told an investors’ conference in Taipei that the company was interested in the Japanese market, eyeing the huge potential for selling pension and wealth-management products there given the nation’s aging population and high savings. At that time, Wu did not answer questions as to whether Tokyo Star met the company’s requirement of generating a 15 percent return on equity. Wu said the company was also eyeing targets in China and Southeast Asia.
CTBC is looking for opportunities to increase its earnings through expansion into international markets via the acquisition of overseas targets, as its home market becomes saturated.
The Nikkei Shimbun first reported the company’s interest in Tokyo Star on Dec. 29 last year for a price tag of ￥50 billion.
“The reported ￥52 billion deal is a bit higher than the originally reported ￥50 billion, but lower in NT dollar terms because of the weaker yen,” Credit Suisse AG analysts Chung Hsu (許忠維) and Michelle Chou (周盈秀) said in a client note yesterday.
While at one point the deal reportedly stalled due to the price, Hsu and Chou said CTBC would have no problem funding the deal because it has about NT$20 billion to NT$25 billion (US$669.1 million to US$836.8 million) of idle capital on hand.
The reported deal has not changed Credit Suisse’s view on CTBC, according to the note. The brokerage maintained its “outperform” rating on the stock with a target price of NT$21.5.
However, whether the potential acquisition of Tokyo Star, a second-tier regional bank with 30 branches, could meet CTBC’s aim to develop the Japanese market remained a question to Jerry Yang (楊尚倫), a Hong Kong-based analyst at Daiwa Capital Markets.
“We believe there would be limited synergies between a Taiwan[ese] and Japanese bank,” Yang said in a note to clients last month, citing the lackluster investment in Taiwan’s Jih Sun Financial Holding Co (日盛金控) by of one of Tokyo Star’s key shareholders, Shinsei Bank.
Shinsei Bank has held a controlling stake in Jih Sun since 2006, but the latter has not seen a meaningful improvement on its return on equity since that time, Yang said.
“Also, we believe the wealth-management business requires a more extensive branch network as it is a ‘people business,’” he wrote.
Daiwa has a “hold” rating on CTBC’s shares, with a target price of NT$19.35.