Fri, Sep 16, 2005 page10

• Share-sale failure raises reform concerns

  HIGH STAKES The government's plans to halve the number of state-controlled banks may have had a setback when a bid to sell its holding in Taiwan Business Bank collapsed

  • By Amber Chung / STAFF REPORTER
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  The government's failure to sell its stake in Taiwan Business Bank (台灣企銀) has raised concerns about the government's plans to halve the number of state banks to six by the year-end as part of its financial reform, analysts said yesterday.

  These concerns were reflected in the bank's share price yesterday, as it fell to NT$9.49 on the Taiwan Stock Exchange.

  "The government is not likely to reach its stated goal this year, as has been projected," SinoPac Securities Corp's (建華證券) finance analyst Chu Yu-chun (朱玉君) said in a telephone interview.

  Taking overseas investors' advice, the government hurried to sell its holdings in state banks as a measure to consolidate the finance sector and foster "national champion banks" to compete against foreign rivals, while replenishing the nation's emptying coffers, she said.

  "But the authority should formulate more complete and feasible plans before putting state banks up for sale," in the wake of the failed auction that had been criticized for its unconventional procedure, unclear rules and the authority's capricious stance during the auction process, Chu said.

  Minister of Finance Lin Chuan (林全) declared last night that the drawn-out bid to sell the government's 41 percent holding in the bank has failed. He said that the union's new demands made the top bidder -- which the ministry didn't name -- decide to pull out of the negotiations.

  The union reportedly requested the prospective buyer to increase the frequency of early retirement from once every half year to once a quarter, within two years of signing the takeover deal.

  Market players have speculated that E.Sun Financial Holding Co (玉山金控) was the likely prospective buyer. Shares of E.Sun Financial rebounded from a recent dip, after the takeover deal collapsed, climbing 5.81 percent to NT$22.75 yesterday.

  E.Sun Financial, the nation's 10th largest financial-service provider, remained evasive about the deal, as its spokesman Tu Wu-lin (杜武林) merely said "no comments on the specific case" in a telephone interview yesterday when asked if the bank union's strike or the price made them drop the bid.

  "We always thoroughly evaluate the effect on employees, benefits to shareholders and long-term development, as well as the public's expectations of every specific merger case," Tu said without elaborating.

  The Taiwan Business Bank Industrial Union (台灣企銀工會) ended a four-day strike against the share sale on Tuesday. The stoppage was said to be the first industrial action in the nation's finance sector, appearing to successfully halt the planned sale and undermine the government's drive to cut the number of financial holding companies by half within two years.

  "The incident has been a huge blow to the government's second-stage finance reform scheme," said Shirley Yang (楊慶祺), a fund manager who manages more than NT$1.2 billion at Invesco Taiwan Ltd (景順投信).

  The union's move could inspire the employees of other state banks to follow suit and obstruct possible merger deals in the future, Yang said.

  The incident will also create an opportunity for lawmakers to step into the government's finance reform policy-making process, which Yang said could make it difficult for the government to achieve its target.

  "President Chen Shui-bian (陳水扁) may have to consider amending the reform plans," she said.

  But this failure would not discourage the nation's financial holding companies from taking over competitors for expansion, Yang said, as "They are always willing [to buy] and keep alert to any acquisition opportunity."

  These buyers are expected to divert their attention to medium and small banks or cooperatives that are easier to acquire than state banks, she said.

  The Financial Supervisory Commission yesterday said the authority would continue the reform by expediting consolidation and internalization.

  "The failed bid is not a setback to the nation's financial reform efforts," commission chairman Kong Jaw-sheng (龔照勝) said.

  Stating that consolidation would not impact on employment, the commission said that the number of finance-sector employees grew to 134,504 last year from 125,026 in 2003, despite a number of mergers and acquisitions last year.

  Meanwhile, the nation's banks have a return on asset ratio of 0.6 percent on average, lower than their foreign rivals' 1 percent, while their return on equity ratio is around 10 percent, compared with foreign competitors' 15 percent to 20 percent, according to the commission.

  The figures indicated that local financial institutions were short on differentiation and capabilities to develop new products, which was the reason that the government was promoting consolidation to help foster between one and three "national champion banks" with a better competitiveness rating, Kong said.
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