Reversal leaves Mega Financial in state's hands

"Cheng should remember that today's election outcome [by which he became chairman] actually comes from the government's long-term cultivation and support ... He will be under the closest moral supervision from relevant agencies and the public," she said.

Asked whether this means that the Cabinet will not consider Cheng Shen-chih a government-appointed board director, the vice premier only said that the nation's legal structure was not ideal and that the government has high expectations for the chairman.

In an effort to calm public outcry and criticism from the media about what they described as the government's passive attitude toward safeguarding its power over Mega Financial, she said a report would be drafted to sort out responsibility for the situation.

In addition, she promised that the government will strengthen corporate governance, adjust the management of Mega Financial and review flawed regulations governing the solicitation of proxy votes, transparency of merger processes and sources of capital used for mergers.

"We will work for the healthy development of financial holding companies and will not compromise with specific conglomerates," she said.

Chairman Cheng Shen-chih has offered to quit the chairmanship of Chiao Tung Bank (交通銀行) after Aug. 21, the date of the planned merger between Chiao Tung Bank and the International Commercial Bank of China (ICBC, 中國商銀) which is owned by Mega Financial, the finance ministry said.

He will also not chair the merged entity.

Mega Financial's union welcomed the dramatic turnabout later yesterday.

"We are glad about the outcome," said Tsai Chiu-far (蔡秋發), chairman of ICBC's labour union. "Our insistence has achieved a triumph."

The union will continue to monitor the performance of the government-appointed representatives as well as those private board directors who harbor takeover plans in the future, Tsai said.

The union will continue to strive to put a representative of labor on the board, since there are now two vacancies, he added.

But the government didn't escape criticism from legislators.

PFP caucus whip Lee Hung-chun (李鴻鈞), said the Executive Yuan could have avoided the whole situation and negotiated on the case earlier.

"But the Democratic Progressive Party [DPP] government always makes abrupt changes as soon as its policy or decision is denounced by the public," Lee said.

DPP caucus whip Ker Chien-ming (柯建銘) denied that the Executive Yuan had pressed the two private board members to resign to ensure government control.

Chinatrust Financial announced in February that it would buy up to a 10 percent stake in Mega Financial, paving the way for a future acquisition.

The merger will serve the interests of investors and the fragmented financial sector since the two financial players will be able to become more efficient and achieve better economies of scale, said Shirley Yang (楊慶祺), a fund manager who manages a NT$1.2 billion portfolio and tracks the financial industry at Invesco Taiwan Ltd (景順投信).

Additional reporting by Jewel Huang