Tue, Oct 07, 2003 - Page 8 News List

Editorial: A good deal for whom?

Following a rash of criticism against Taipei Mayor Ma Ying-jeou (馬英九) for attending banquets held by the Fubon group, questions about Fubon Financial Holdings Co's (FFH) merger-acquisition with TaipeiBank have come under the spotlight due to comments from the bank's former chairman Liao Cheng-ching (廖正井).

Was the merger done properly? Did it involve any economic crimes? It is too early to accuse any party of any impropriety. The Taipei City Government, however, needs to clarify a few points regarding conflicts of interest.

The city's Department of Finance said on Sunday that the bank merged with FFH, not its affiliate Fubon Bank, and that the merger was based on net value, not assets. However, that explanation still leaves several points unanswered.

First, as Liao has pointed out,TaipeiBank's assets are much larger than those of FFH. Before the merger, the Fubon group had expanded its assets by restructuring to bring its affiliates under the FFH umbrella. This, however, does not change the fact that a small company acquired a larger one, no matter what the process is called. The city government's explanations about net value do not entirely refute the arguments made on the basis of asset value.

Second, how did TaipeiBank chief executive officer Jesse Ding (丁予康) become a FFH board member? He is the key character in this affair -- a matchmaker who became the groom. Before the deal, Ding was a member of TaipeiBank's executive board -- representing the city government -- while also moonlighting as the bank's chief executive officer. He was one of the key negotiators for the merger. After the merger, he was appointed to FFH's board by the Fubon group's largest shareholders , the Tsai family -- but on his own, not as a representative of the city government. The city government raised no objections to Ding joining the FFH board, despite the obvious conflict of interest.

Taipei City councilors, however, have raised questions about the dramatic hike in Ding's salary -- from between NT$4 million and NT$5 million when the bank was still a state-owned enterprise, to NT$20 million (including dividends) now. It is difficult not to associate such an increase with Ding's role in the merger.

Third, how appropriate was the timing of the city's planned sale of the FFH shares it gained in the share swap? The city announced the merger in August last year. Some business analysts say the synergy effect of a merger does not become apparent until three years afterwards. Why is the city in a hurry to sell the shares after only one year?

Finally, is the share sale the only way to resolve the city's financial difficulties? The city government can use its shares as collateral for loans, which, given the present low interest rates, appear a better deal. But the city is pushing ahead with plans to get rid of the shares by evaluation instead of open bidding. -- no wonder even Ma's own party -- the Chinese Nationalist Party (KMT) -- is complaining.

The merger has been touted as a success, but that does not mean it does not warrant further scrutiny. Either Ma was misinformed from the very beginning, or he has knowingly condoned actions by subordinates that are aimed at benefitting a business conglomerate. Both scenarios are detrimental to Ma's political career.

Sunday's press conference left more questions than it answered. If the city government cannot clarify the details of the merger, the Control Yuan should launch an investigation.

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