Fri, Jan 14, 2000 - Page 1 News List

Legislators `squeezing' banks: report

CONTROVERSY State-owned banks have been coming under political pressure from legislators to invest in their venture capital companies, reports claim

By Shirley Sun  /  STAFF REPORTER

Surrounded by reporters, legislator Ho Chih-hui, center, denies allegations that he pressured banks to invest in his company.

PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES

The legislature is quite accustomed to allegations of financial impropriety and corruption being leveled at its members. But yesterday it was humming with speculation at an intensity not seen for some time, owing to reports that legislators had been coercing state-owned banks to invest in their venture capital firms.

The China Times broke the story yesterday morning, and by the afternoon it had been picked up by most local media. It claimed that several legislators who owned venture capital firms that invested in promising Internet companies had been pressuring state-owned banks to invest in their firms. The carrot offered to the banks was that the lawmakers would push through legislation allowing Internet companies to be listed more quickly, which would result in windfall profits for the venture capital firms. The stick held out to the banks was that they would have their operating budgets adjusted or held up by the lawmakers if they failed to comply.

The reports generated fierce debate in the legislature, which ends its session today.

Lai Shyh-bao (賴士葆), a New Party legislator, said it was known that some legislators had been making good use of the KMT's drive to create a feel-good atmosphere before the presidential election by passing legislation that would cheer the business community, such as allowing Internet companies a fast track to stock market listings.

"It's true: there are state-owned banks which have been coming under pressure from legislators to invest in their venture capital companies," he said.

Lai said he had phoned several state-owned banks, including the Bank of Taiwan and Land Bank of Taiwan, which had confirmed the reports.

"There was one state-owned bank which refused to invest in the venture capital company and later on had a very difficult time getting its budget passed by the Legislative Yuan's Finance Committee," Lai said.

At present, venture capital companies can only buy stocks in companies that are privately held, and the most promising of these are considered to be those with strong growth plans based on Internet businesses.

"Legislators know that will change soon," said Lai, with these companies being able to list on the stock market. "Therefore, they have established these venture capital companies in advance of the listing, with capital from the state-owned banks, based on the provision that they will push through the necessary legislation allowing the Internet companies to get listed," he said.

"These firms stand to make returns on their investments of maybe 10 to 100 times."

Local media claimed yesterday that the total amount taken from the state-owned banks for investment in the venture capital firms was approximately NT$750 million.

The allegations caused red faces among finance ministry officials and turned some of the named legislators purple with rage.

Hsu Chen-ming (許振明), a professor of economics at National Taiwan University, pointed out that ideally there is nothing wrong with commercial banks investing in the venture capital companies. This is normal business behavior and banks would surely evaluate the associated risks. But, as Lai said, this may not be the case in reality and the finance ministry should come out strongly to clarify whether the state-owned banks had been coming under undue pressure. The ministry should simply say, "Yes is yes [banks are under pressure], and no is no [illegal venture capital investment is not allowed]," Lai said.

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