Cathay Life Insurance Corp (
Cathay Life Chairman Tsai Hong-tu (
"The fight for United World is a fight for supremacy in Taiwan's financial market," said Lin Tsui-pin (林翠萍), who manages Prudential Securities Investment Trust Co's (保誠投信) NT$400 million (US$12 million) Financial Fund. "The fact they're family makes this sensational to watch." The battle comes as the government is trying to sell down its stakes in banks and streamline an industry bulging with almost 50 banks and more than 500 other financial institutions.
The pace of mergers is stepping up after a law was enacted to allow banks, brokers and insurers to combine under holding companies and as recession pinches profits.
Insurance tsars
The family's two insurance tsars already own part of United World. Fubon has nearly 10 percent of the United World, while Cathay increased its stake to 10 percent from 4.2 percent in May.
Fubon, 15-percent owned by Citigroup Inc, said in July it wants the bank as part of its group and, in August, Cathay said it wants to expand its stake.
The Tsai family first started business early in the last century as soy-sauce makers. It later branched into hotels and petrochemicals, then moved into insurance. In the 1970s, the family wealth was divided among three sons, including Daniel Tsai's father and his uncle Tsai Wan-lin (
Tsai Wan-lin, 76, the family patriarch, was listed as Taiwan's richest man in <
The Ministry of Finance, which has eight seats and owns 28 percent of the bank, declined to comment on the battle. The government will stay neutral, United World Chairman Wang Kuo-hua (汪國華) said. "Whoever gets 51 percent, gets it," he said.
Still, United World is in no hurry to make a decision, Wang said. It's looking for "a partner that has good asset quality" and will complement the bank to the benefit of shareholders.
At stake is a bank with NT$656 billion in assets, 82 branches and 2,700 staff. United World earned NT$2.4 billion (US$69 million) in the nine months through September, up from NT$1.8 billion a year earlier. Its non-performing loan ratio is low for Taiwan, at 6 percent.
Cross-selling
United World has special appeal for two insurers. About two-thirds of its three million deposit accounts are used for equity trading, providing stock trading and other information that could be useful for cross-selling insurance and insurance and other products.
"Our customers' equity trading accounts contain the most extensive banking information on stock investors," said United World spokesman Yang Chun-wei. "That's priceless to Fubon and Cathay." United World is one of five banks Fubon has identified as acquisition targets, said Ng Wing Fai, managing director of Fubon Commercial Bank (
"Although Cathay Life has 10 times more assets than us, it has only half of the capital we have," Ng said, adding that Fubon could raise more funds from its investors, including the Tsai family and Citigroup, if needed.
Financial strength
"Cathay Life's balance sheet may not be strong enough to support such an acquisition," Ng said.
Cathay last month agreed to buy Capital Securities Corp (
Chairman Tsai Hong-tu said the main obstacle for its bid is a law barring insurers from buying more than 10 percent of an individual bank, to avoid risks.
Cathay has applied to the Ministry of Finance to grant the company an additional 5 percentage point leeway that would allow it to invest in United World. If needed, Cathay would continue to buy United World shares through affiliated units such as Cathay Construction Co (
The ministry is "inclined" to grant Cathay's request, United World's Yang said.
Taiwan's financial industry is consolidating at a record pace, hoping bigger companies can ride out a rise in defaults.
About 11 percent of loans are overdue or in trouble, according to the government, though private sector estimates say the figure could be as high as 20 percent.
In the last month, Taishin International Bank (台新銀行) bid for rival Dah An Commercial Bank (大安銀行), and China Development Industrial Bank (中華開發銀行) said it will take over closely held First Taiwan Securities (菁英證券). First Commercial Bank (第一銀行) plans to acquire Mingtai Fire & Marine Insurance Co (明台產險), and Chiao Tung Bank (交通銀行) said it would buy International Securities Co (國際證券).
Fubon is waiting for government approval to form a holding company so to kick off its acquisitions.
"We have detailed financial analysis on all these five banks, detailed understanding of the cost base, staff, quality of personnel and quality of clientele," Ng said. "We will not shy away from doing an unsolicited offer."
United World shares have dropped 18 percent this year, compared with a 12 percent drop in the benchmark Taiwan index.
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