Financial Supervisory Commission Chairman Wellington Koo (顧立雄) last week announced that the government would ease financial rules to help consolidate the nation’s overcrowded and fragmented financial sector.
Financial holding companies seeking to acquire another financial firm — be it another financial holding company, a bank, an insurance company or a securities broker — could acquire a 10 percent stake in the latter within a set period to make it a subsidiary, according to the proposed changes to the regulations controlling mergers and acquisitions (M&A).
This greatly eases the restrictions on investments by financial holding companies, especially in hostile takeover bids. Current rules require that companies planning to invest in another financial firm first gain the financial regulator’s approval and then obtain a 25 percent stake in the target firm within a set period.
There is one crucial detail, though: The changes would apply only to consolidations involving privately run companies and institutions, Koo said.
The commission’s proposal is closely related to the nation’s political and economic situation, as well as public sentiment.
Government policies regarding financial mergers and acquisitions have often led to the question of whether the government or market forces should play a greater role in achieving consolidation.
Another question has been how big a stake financial holding companies seeking to invest in other financial firms through takeovers should be required to purchase in a single move.
Moreover, many Taiwanese regard hostile takeovers among financial institutions as brash US-style capitalism. Some people still recall the negative implications of several controversial M&A deals during a government push for financial reform in 2005 and 2006. Those included China Development Financial Holding Corp’s drawn-out hostile takeover bid for Taiwan International Securities Corp, Chinatrust Financial Holding Co’s (now CTBC Financial Holding Co) dubious investment in bigger rival Mega Financial Holding Co and Taishin Financial Holding Co’s investment in Chang Hwa Commercial Bank.
While the commission plans to open the door to hostile corporate takeover bids between financial firms, it has vowed to maintain the same eligibility standard for companies making an acquisition and give due consideration to financial discipline in the sector.
As the proposed change does not apply to M&As between private-sector financial institutions and their public-sector peers, or to deals among state-run financial holding companies and institutions — which usually face strong opposition from labor unions and politicians — it could minimize the uncertainties they might bring to the market.
However, as the government’s M&A policy has swung like a pendulum in step with social and economic developments over the past decade, it remains to be seen if the latest proposal would make territorial expansions among local financial institutions smoother, and more effective and resilient.
On the other hand, the role of state-run financial institutions in supporting national policy within a capitalist market economy is still a topic of debate.
In any case, policymakers must realize that the trend of further consolidation is inevitable in the financial industry and their decision to shield state-run firms from new M&A rules is not beneficial in the long run.
If public-sector firms do not improve their operational efficiency and deliver better financial results, they will face increased competition from their private-sector peers, as the latter become more aggressive in looking for potential acquisition targets to increase their business scope and competitiveness.
Making sure that state-run firms stay abreast of the latest trends in the financial sector should be the main focus of the government’s financial reforms.
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