Trust is the bedrock of finance, and a precondition for the smooth operation of trade. Financial institutions provide this trust. By submitting themselves to the government’s strict oversight they receive the trust of the market. This trust exists not only between individuals and individual financial institutions, it also exists between the market and its participants.
Competent authorities also play an important role. They must also ensure fairness, requiring all financial operators to respect and follow the same rules. This enables the healthy development of the industry and protects the rights and interests of society overall.
In the case of hostile takeovers, the acquirer must meet fundamental criteria, including capital adequacy, sound business operations, an international presence and corporate social responsibility.
Taishin Financial Holding Co and CTBC Financial Holding Co are vying to merge with or acquire Shin Kong Financial Holding Co.
In 2012, Taishin Financial had a double leverage ratio of 120 percent — higher than its peers. The Financial Supervisory Commission considered 110 percent to be the limit for a “sound financial holding company,” and so required Taishin to boost its capital strength. Taishin’s application to acquire a local unit of New York Life Insurance Co was rejected.
When Fubon Financial merged with Jih Sun Financial, it increased its capital by NT50 billion (US$1.56 billion) to maintain a healthy double leverage ratio. Clearly, the authorities view the double leverage ratio as a litmus test for determining whether a company has adequate capital.
The double leverage ratio reflects the risks posed by a financial holding company’s debt operations. When the commission reviews a merger application, it considers whether the merger would impact the public’s rights and interests. Suppose a financial holding company that is “too big to fail” has a double leverage ratio precipitously close to the upper limit: This would be a ticking time bomb.
According to a commission report in June, CTBC Financial had a double leverage ratio of 121.47 percent. CTBC has offered to buy 51 percent of Shin Kong Financial for NT$131.4 billion, including NT$95.4 billion in shares and NT$36 billion in cash, which would raise its double leverage ratio to more than 124 percent. Using a stricter definition that does not include special shares, the ratio could exceed the upper limit of 125 percent. CTBC Financial is a systemically important financial institution considered “too big to fail.”
The competent authorities’ consistency and policy conformity are of utmost importance to create a future “Asian asset management center” in Taiwan. Such a center would need to be founded on substantial trust and fidelity. It would also have to be supported by a fair and equitable supervisory system.
To entice foreign investment to Taiwan, supervisory bodies would need to guarantee market transparency and fairness. If double leverage ratios were used in the past as the basis for standard qualification for mergers and acquisitions, changing the rules would affect the international community’s perception of Taiwan.
Should auditing systems and bodies fail to retain strict adherence to codes and standards of integrity, this could damage the public’s trust in the government and chip away at support for the ruling party. Most important is that such a scenario could put a greater distance between Taiwan and the goal of transforming the nation into Asia’s asset management center.
Chiang Chung-yuan is an associate professor in the Department of Law at Shih Chien University.
Translated by Tim Smith
Taiwanese pragmatism has long been praised when it comes to addressing Chinese attempts to erase Taiwan from the international stage. “Taipei” and the even more inaccurate and degrading “Chinese Taipei,” imposed titles required to participate in international events, are loathed by Taiwanese. That is why there was huge applause in Taiwan when Japanese public broadcaster NHK referred to the Taiwanese Olympic team as “Taiwan,” instead of “Chinese Taipei” during the opening ceremony of the Tokyo Olympics. What is standard protocol for most nations — calling a national team by the name their country is commonly known by — is impossible for
India is not China, and many of its residents fear it never will be. It is hard to imagine a future in which the subcontinent’s manufacturing dominates the world, its foreign investment shapes nations’ destinies, and the challenge of its economic system forces the West to reshape its own policies and principles. However, that is, apparently, what the US administration fears. Speaking in New Delhi last week, US Deputy Secretary of State Christopher Landau warned that “we will not make the same mistakes with India that we did with China 20 years ago.” Although he claimed the recently agreed framework
The Office of the US Trade Representative (USTR) on Wednesday last week announced it is launching investigations into 16 US trading partners, including Taiwan, under Section 301 of the Trade Act of 1974 to determine whether they have engaged in unfair trade practices, such as overproduction. A day later, the agency announced a separate Section 301 investigation into 60 economies based on the implementation of measures to prohibit the importation of goods produced with forced labor. Several of Taiwan’s main trading rivals — including China, Japan, South Korea and the EU — also made the US’ investigation list. The announcements come
Taiwan is not invited to the table. It never has been, but this year, with the Philippines holding the ASEAN chair, the question that matters is no longer who gets formally named, it is who becomes structurally indispensable. The “one China” formula continues to do its job. It sets the outer boundary of official diplomatic speech, and no one in the region has a serious interest in openly challenging it. However, beneath the surface, something is thickening. Trade corridors, digital infrastructure, artificial intelligence (AI) cooperation, supply chains, cross-border investment: The connective tissue between Taiwan and ASEAN is quietly and methodically growing
RSS