Chinatrust Commercial Bank (??國信託), a unit of the Koo's Group, announced yesterday it would spend NT$1.5 billion to acquire a 98 percent stake in Bao Chen Securities (寶|並狳?.
The decision to expand was made in view of the anticipated increased competition that may follow Taiwan's entry into the WTO, the company said. The new firm will focus on on-line stock trading and e-commerce.
According to an official from Chinatrust, who asked to remain anonymous, the acquisition will also enable the bank to enlarge the scope of its securities business. Currently, the bank's trust department is prohibited from underwriting OTC initial public offerings.
However the acquisition will bypass that prohibition and permit Chinatrust to carry out such a service, according to the official. The subsequent opportunities are expected to be large.
"There are currently over 1,700 public and unlisted companies that may get listed on the main board or the OTC in the future, so the market is huge," the official said.
The acquisition will also provide Chinatrust with the possibility of conducting other more profitable securities business such as brokerage services, industry analysts said.
According to one analyst from a securities firm, 70 percent of a securities firm's profit comes from its brokerage business.
The many restrictions currently applied to banks' securities business allow them to conduct brokerage or underwriting services, but not both.
Bao Chen Securities, meanwhile, is an integrated securities firm. It may conduct brokerage, underwriting and principle operations.
Chinatrust's acquisition of Bao Chen Securities would allow it to operate all three operations.
Industry analysts say that the cooperation between banks and securities firms will also enable them to share customers and subsequently provide more business opportunities for both.
A securities firm, for instance, may provide brokerage services to customers who open accounts at its associated bank.
Chinatrust's acquisition is the latest in a series of moves by banks to set up or invest in securities firms.
Bank Sinopac has invested in Sinopac Securities and Taishin International Bank (台新) in Taiwan Securities. China Development Industrial Bank (??華開發?u業銀|? also plans to acquire Grand Cathay Securities.
According to industry sources, Chinatrust originally planned to spin off its trust department and make it an independent securities company.
However, the Ministry of Finance (
Instead, the ministry has been encouraging financial institutions, including banks and securities firms, to merge in order to increase their competitiveness. However, such mergers must await passage of the Financial Institutions Merger Law, currently under review in the legislature, say industry analysts.
Despite this, Minister of Finance Paul Chiu (邱正雄) has promised at least one merger between banks by the end of this year. Several state-run banks are mulling the possibility of a merger.
Last month, Taiwan's leading and third largest securities firms, Yuanta Securities (
"It is easier for securities firms to merge than banks," said an analyst from a securities firm. He said he believes the success of a securities firm depends on its market share while, for banks, it is the niche markets that matter.
"Securities firms have to merge to get a large market share," the analyst said.
It is also difficult for local banks to merge together, as many are owned by large conglomerates.
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