Cathay Financial Holdings' (
Whether we look at the value of its assets or of its capital, Cathay is the largest financial holding company in Taiwan, also leading the pack when it comes to share price and income after tax. In July this year, Forbes Magazine gave Cathay a ranking of 240 in its annual International 500 listing of the 500 most profitable companies in the world. Cathay was the only financial institution in Taiwan to make it onto the list. Whether it will rank even higher now that it has acquired UWCCB is worth some further discussion.
In the current sluggish economy, the string of mergers among financial institutions in Taiwan has caused investors to focus on financial stocks, which is a good sign. Attention should be given, however, to whether companies will perform better following mergers and other forms of expansion. More importantly, can Taiwan's much maligned financial sector expect some relief?
We know that mergers of financial institutions have become fashionable lately, and the reason for this is the promulgation of the Financial Institution Merger Act (金融機構合併法) and the Financial Holding Company Law (
While the question cannot be answered definitively, and I don't wish to be the bearer of bad news, the history of international mergers tells us that the outlook is not very positive. Some research shows that two out of three mergers fail, and that the only winners are the shareholders of the acquired company, who profit from their shareholdings. The reason for these failures is that people can never be matched up as easily as flow charts. Scale is not always a matter of economics.
Wu Hui-lin is a research fellow at the Chung-Hua Institution for Economic Research.
Translated by Perry Svensson
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