Tue, Oct 24, 2006 page12

• M&A in Taiwan a slow train coming, Macquarie says

  • By Amber Chung / STAFF REPORTER
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  Staff Reporter

  Despite the recent ruckus about takeover activities in the banking industry, more merger and acquisition (M&A) deals between foreign companies and small local private banks can be expected, market watchers said yesterday.

  "Although the recent actions by the government related to state bank M&A activities have cooled enthusiasm on this topic in the banking sector, we still see the potential for perhaps two or three more foreign purchases of small Taiwanese banks," Macquarie Research said in a report released yesterday.

  The Australian brokerage likened M&A in Taiwan to a slow train coming.

  The most attractive targets remain small banks with strong management teams and branch networks in northern Taiwan, such as Far Eastern International Bank (遠東國際商銀) and Shanghai Commercial Bank (上海商銀), Macquarie said.

  Other potential targets include Bank of Overseas Chinese (華僑銀行) and Ta Chong Bank (大眾銀行), it said.

  Bank of Overseas Chinese has long been rumored to be engaged in talks with Citibank for a buyout deal.

  Far Eastern International has reportedly intrigued several foreign rivals, including HSBC Ltd, although the current owner has refused to surrender management control.

  The local banking sector is in an uproar after prosecutors detained three Chinatrust Financial Holding Co (中信金控) executives last week over its disputed takeover bid for Mega Financial Holding Co (兆豐金控) and the ongoing tussle between the Ministry of Finance and Taishin Financial Holding Co (台新金控) over a share-swap deal with Chang Hwa Bank (彰化銀行).

  Mega Financial and Chang Hwa are both state-controlled lenders, in which the finance ministry holds stakes of 22 percent and 18 percent respectively.

  "The recent events involving Chinatrust and Taishin bolster our view that meaningful M&A among the large state banks is not likely to occur ... within the next two years, as the political environment is not likely to improve within that timeframe," Macquarie said.

  The government lacks political firepower to force through much-needed consolidation, the Australian brokerage said.

  Analysts are not optimistic that the likely return to power of the Chinese Nationalist Party (KMT) in 2008 would be followed by a rationalization of the banking sector, as vested interests in the status quo may win out over much-needed reform, it added.

  Consolidation could take place in name only as state banks are merged to fulfill the government's goal of halving the number of state banks, which does not constitute privatization or a reduction of government involvement in the financial system, Macquarie said.

  This is generally negative for a fragmented sector that has long been in need of restructuring, it said.

  Similarly, Credit Suisse said that the sale of some small banks was likely in the next 12 months, although the scale could be far too small to have a structural impact on the local banking sector.

  It remained cautious about market consolidation in Taiwan, as political gridlock remained the biggest obstacle to resolving the structural issues, Credit Suisse said in a report dated last week.
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