Cathay Life Insurance Corp (國泰人壽) said it agreed to buy Capital Securities Corp (群益證券) and is mulling a bid for United World Chinese Commercial Bank (世華銀行), as Taiwan's largest insurer tries to expand into lending and share-trading.
Cathay is awaiting a response from United World, Taiwan's second-largest bank by market value, said Lee Chang-ken, general manager of Cathay's corporate planning department. The bank said it's undecided on whether to join a three-way merger, which would be worth about US$8.8 billion at current market prices.
Taiwanese brokers, insurers and banks are rushing to combine under a new holding company law taking effect Nov. 1, pressured by a government that wants fewer, stronger financial firms. They are also pressured by tough competition on an island that's in recession.
``Forming a holding company is only the first step in combining companies, but the real consolidation of the island's financial industry has just begun,'' said Jessica Chen, who manages Fubon Securities Investment Trust Co's (富邦投信) NT$300 million Precision Fund.
Hua Nan Commercial Bank (華南銀行) is buying Entrust Securities Co (永昌證券) and Bank Sinopac (華信銀行) is buying National Securities Corp (建弘證券), and others want to broaden their business, especially as the industry is gradually opened up to foreigners.
HSBC Holdings Plc, Europe's biggest bank, earlier this year paid US$187 million for control of China Securities Investment Trust Corp (中華投信), the island's largest fund manager. Cathay spokesman Huang Diao-kuei (黃調貴) said details of the Capital Securities takeover will be released after a share-swap ratio is agreed.
``Having Capital Securities joining in our financial holding company will add a good mix to our insurance services, and United World would also be a big plus,'' Lee said.
JP Morgan Chase & Co advised Cathay Life on the Capital Securities purchase.
``The holding companies are aimed at forming full-service financial supermarkets,'' said James von Moltke, head of financial institution mergers and acquisitions at JP Morgan. ``It's part of an ongoing trend.'' Cathay Life is valued at NT$217 billion (US$6.3 billion) while Capital Securities is valued at NT$14.4 billion. United World has a market capitalization of NT$74 billion.
United World board members held a special meeting this afternoon to discuss plans to consider joining the financial holding companies being formed by Cathay or rival Fubon Insurance Co (富邦產險), bank spokesman Yang Chun-wei said. ``We decided we needed more discussions,'' Yang said.
The government controls eight of United World's 20 board seats, Fubon controls three and Cathay has one. Fubon, a 15 percent-owned affiliate of Citigroup Inc and owner of Fubon Insurance, said in July it's interested in buying United World and plans to set up a holding company as early as December to make takeovers easier.
Taiwan authorities are trying to encourage mergers among banks, insurers and other financial companies on the island, where about 50 banks and 400 smaller lenders are competing for business.
Cathay Life shares fell 0.8 percent to NT$36.60. The stock has fallen 31 percent this year, compared with a 20 percent drop on the island's benchmark TAIEX.
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