Financial regulators yesterday reiterated that the government supports mergers and acquisitions among domestic financial institutions to enhance their competitiveness if consolidations are done in a transparent and fair manner.
Their remarks came after the Chinese-language Commercial Times reported yesterday in a front-page story that four state-controlled financial holding companies — Taiwan Financial Holding Co (台灣金控), First Financial Holding Co (第一金控), Mega Financial Holding Co (兆豐金控) and Hua Nan Financial Holdings Co (華南金控) — would lead a new wave of mergers and acquisitions in the financial sector, without citing sources.
However, the regulators’ remarks did not buoy financial shares as the sector remained -under -profit-selling pressure amid the government’s continued efforts to tighten property-related lending.
The financial and insurance sub-index on the main bourse edged down 0.93 points, or 0.1 percent, to 974.1 yesterday. That compared with a rise of 0.37 percent on the benchmark TAIEX, data from the Taiwan Stock Exchange showed.
“The appropriate mergers and acquisitions would lead to a better and more efficient local financial industry,” Financial Supervisory Commission (FSC) Chairman Chen Yuh-chang (陳裕璋) said in a report to the legislature’s Finance Committee yesterday. “The local financial industry is a bit crowded.”
Minister of Finance Lee Sush-der (李述德) also said state-owned lenders could determine their own strategic planning, including mergers and acquisitions, to broaden their operational scale, and it is possible that private shareholders could take over the management of state-run banks.
Neither Chen nor Lee elaborated on their preference for financial consolidation, or identified which state-run lender or state-controlled financial holding company was a target for mergers and acquisitions.
Lee said yesterday the ministry expected Taiwan Cooperative Bank (合作金庫銀行), among state-controlled banks, to upgrade to a financial holding company. He did not give a timeframe for the domestic lender with the most branches to achieve this goal.
In December, Taiwan Cooperative executive vice president John Chou (周叔璋) said the company would propose reorganizing itself as a financial holding company at its annual general meeting in May or June, before applying for approval from the FSC. The company aimed to realize this goal by the end of this year, he said at the time.
Despite local media speculation over mergers and acquisitions in the domestic financial sector and the regulators’ recent remarks, Goldman Sachs analyst Vincent Chang (張進森) said he did not expect to see large-scale mergers and acquisitions in the financial sector any time soon.
“At present, the banking sector is in an upcycle, with healthy loan growth, improving net interest margin and low non-performing loan ratioa; the sense of urgency for target banks to receive capital injections and strengthen balance sheets is generally low,” Chang said in a research note issued on Wednesday.
Chang said potential opposition from labor unions at state-owned banks and objections by politicians — who have blocked several mergers and acquisitions in the past few years — might remain a major challenge to consolidation.
“Presidential and legislative elections will take place in early 2012; proactively pushing for merger and acquisition activities in the financial sector might not be well perceived, given the potential social backlash,” he said in the note.
ADDITIONAL REPORTING BY AMY SU
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