Morgan Stanley joins AMC venture

Morgan Stanley Dean Witter & Co and a Taiwan partner will spend more than US$600 million to buy bad loans from banks, the third US bank this month to say it will help the island's lenders clean up their balance sheets.

Morgan Stanley and China Development Industrial Bank (中華開發工業銀行) will form a joint venture to buy up to NT$20 billion (US$615 million) of bad loans from the island's banks, a week after similar investments by rivals Goldman Sachs Group Inc and Lehman Brothers Holdings Inc. The venture awaits approval from China Development's board, the company said in a statement.

"It's great for the market, the economy and the domestic financial sector as it brings in more foreign expertise and helps clean up the banking system," said Billy Chan, who helps manage about US$7 billion in Asia for Invesco Asia Ltd. in Hong Kong.

Taiwan is looking for outside help to clean up a banking industry that's seeing rising bad loan levels, as it prepares to combine its more than 50 banks and more than 300 other lenders into fewer and stronger groups.

Just 10 days ago, Goldman Sachs Group Inc teamed up with Chinatrust Commercial Bank (中信銀) to invest a combined NT$10 billion in bad loans. Two days later, Lehman Brothers Holdings Inc said it would join several Taiwanese state-run banks to form an asset management company.

The government says about 8 percent of loans are bad, against private estimates of up to twice that level.

Taiwan wants to ease concerns about bad loans that contributed to a 44 percent slide in the key stock index last year, in turn, eroding the value of shares held by banks as collateral against many loans.

Under the initial agreement, Morgan and Taiwan's China Development Industrial Bank will form a joint venture to buy Taiwanese bad loans and will also set up a financial services company, in which each will hold a 50 percent stake, to help dispose of assets, China Development said.

"The cooperation will help solve problems in Taiwan's financial industry," China Development President Benny Hu (胡定吾) said.

A memorandum of understanding has been signed, said Morgan Stanley Spokesman Gerry Kay.

China Development mainly lends to companies, supplies venture capital to new businesses and underwrites share sales.

Meanwhile, China Development sees pre-tax profits for year 2001 at NT$16.228 billion, which translates into pre-tax earnings per share of NT$1.96, the bank said in a statement Friday, following a board of directors meeting.

Taiwan's banking and insurance index has risen 27 percent this year on optimism about the government's progress in fixing its banks, after falling almost a third last year. China Development Industrial Bank rose 38 percent this year, compared with the key TWSE Index's 23 percent gain in the same period.