The controversy over Chang Hwa Bank’s (CHB, 彰化銀行) board election continued yesterday, as the Ministry of Finance (MOF) denied allegations of breach of trust, insisting that a 2005 pledge is no longer valid or binding.
Taishin Financial Holding Co (台新金控), which filed a lawsuit against the ministry on Tuesday at a district court in Taipei, has alleged that the ministry is being inflexibile about board seat arrangements and therefore breaking the terms of a contract signed in 2005.
In the suit, Taishin Financial is seeking NT$10 billion (US$320.47 million) in damages for losses linked to investments in Chang Hwa Bank.
“The 2005 promise is no longer valid today, as is evidenced by the three documents” Taishin Financial references to support its complaint, Minister of Finance Chang Sheng-ford (張盛和) yesterday told the legislature’s Finance Committee.
BROKEN PROMISE?
The documents reportedly state that the ministry should help the winning bidder of Chang Hwa Bank’s special shares obtain a majority of board seats in the 2005 election, allowing it to dominate the lender’s policymaking decisions and operations, the ministry said.
The ministry fulfilled the promise in 2005 and following years, even though the commitment was limited to a particular capital increase plan, Chang said.
The agreement would still be valid today if Taishin Financial had not pushed the ministry to the sidelines during prior talks about board seat distributions, the minister said.
“The ministry is confident about winning the lawsuit,” Chang said, since its actions have not infringed on the rights or interests of Taishin Financial, which won the share auction with a 40 percent premium.
TAISHIN LOSSES
Taishin estimates that by assessing its Chang Hwa Bank investment with mark-to-marketing methods, it would suffer a one-time loss of NT$14.8 billion, after the company lost the qualification to consolidate Chang Hwa Bank as a subsidiary.
Although the mark-to-market loss on Chang Hwa Bank is not expected to have a material impact on Taishin’s banking operations, it might negatively affect the conglomerate’s rate of expansion in China, in that Chang Hwa Bank has a branch in Kunshan, Jiangsu Province, and one in Dongguan, Guangdong Province, which provide a launching pad for Taishin in the Chinese market.
Taishin Financial has to demonstrate prior banking experience in member countries of the Organisation for Economic Co-operation and Development in order to qualify for the Chinese market.
TRADE PACT LINK
The cross-strait service trade pact would allow the conglomerate an exception to the regulation, but the controversial measure remains deadlocked in the legislature.
The ministry yesterday appointed Chang Hwa Bank president Chang Ming-daw (張明道) to the chairperson’s seat, and he is to continue serving as president for the time being.
The ministry intends to save the president of the board seat for Taishin’s candidate.
However, the conglomerate on Tuesday turned down an invitation by the ministry to discuss top executive candidates, saying it should have no input on the issue, given its minority position on the board.
It is not clear how the court is set to interpret the 2005 promise, as the documents at issue reportedly do not unambiguously say whether the boardroom control and management rights constitute a one-time or permanent agreement.
TAIPEI 101 SHARES
In related news, the Ministry of Finance yesterday said it plans to increase its stake in Taipei Financial Center Corp (TFCC, 台北金融大樓公司), the firm that operates Taipei 101, from 44.3 percent, to more than 50 percent to ensure its majority holding.
Chang said he has asked government shareholders to evaluate the purchase after private peers indicated their willingness to sell.
He refused to elaborate, but reiterated wishes to keep management rights of the skyscraper in Taiwan.
“It is not difficult to increase stakes in Taipei 101, as long as the parties involved agree on pricing,” Chang said.
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