Big is better for brokers

As the rest of Asia's economies tanked during the financial crisis that began in 1997, Taiwan remained afloat. Consequently, Taiwan also failed to pay heed to the wave of corporate restructuring that swept post-crisis Asia.

But that is changing now, as Taiwanese firms finally learn to bury their age-old traditions by joining up with their bigger rivals to become more competitive. Nowhere is this restructuring -- hitherto a foreign term in Taiwan -- more evident than in the nation's brokerage sector.

Restructuring as a concept is so new that the Chinese language has no equivalent term. Ironically, a direct translation of the word is "chung cheng," which, in legal parlance, means insolvency or bankruptcy -- a fate met by many Taiwanese companies in the aftermath of the Asian crisis over the past two years.

But "the bigger the better" has become the new mantra in the brokerage sector. In only three months, the competitive sector has seen six different mergers.

Starting this restructuring spree was Yuanta Securities (元大), the nation's largest broker, which announced a merger with Core Pacific Securities (京華), the fourth largest, in November last year. The result is Yuanta Core Pacific, with an 8.6 percent market share. Then earlier this month, Yuanta Core Pacific Securities bought Dafa Securities (大發), further boosting its market share to 10 percent. The combined entity now controls 93 branches nationwide.

Last month, Masterlink Securities (元富) bought two other brokers, increasing its market share to 4.2 percent with control over 53 branches. In addition, National Securities (建弘) announced last month that it will buy Wansheng Securities (萬盛) for a 3.8 percent market share, bringing its total number of branches to 36.

As if that were not enough, Polaris Securities (寶來), which holds the leading position for Internet broking, announced that it will buy three securities firms -- Top Soon Portfolio Securities (大順), Protime Securities (時代), and Overseas Credit and Securities (華僑). At the time of the announcement, Polaris was poised to become Taiwan's second largest stockbroker, with a 4.5 percent market share and 52 branches.

But that position was challenged a few days later when Fubon Securities (富邦) announced a merger with six securities firms, a move expected to increase its market share from 2.73 percent to 6.6 percent. The six firms included Uni Securities Co (環球), Sino-Japan Securities Co (中日), Golden Securities International Co (金山), Happy Securities Co (快樂), Hua Hsin Securities Co (華信) and Shih Ling Securities (世霖).

With brokerage prices skyrocketing, thanks to the rising turnover volume in the stock market, now is the best time for them to go ahead with merger and acquisitions in the industry.

Internet trading, or e-trading, is increasingly challenging the position of securities firms, as investors with an Internet connection in the future may directly place buy and sell orders without having to call up the brokers or visit brokerage houses.

"With the introduction of Internet trading, it is very risky for brokerage firms to do brokerage alone," said Rachel Wu, banking analyst for Warburg Dillon Read's Taipei office. Taiwanese stockbrokers, therefore, have no choice but to merge to get bigger.

Raymond Hsu, a banking analyst for Grand Cathay Securities (大華), agreed. "While the e-trade or the Internet trading is not yet popular, it is an irreversible trend," Hsu said.