Fri, Dec 31, 1999 page21

• Review III: Worldwide merger madness comes to local financial industry

  • By Stanley Chou / STAFF REPORTER
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  After sweeping through the US, Europe and parts of Asia, merger mania in the financial and securities industries has finally reached Taiwan.

  Recent mergers between both banks and securities companies may have set an example for other financial institutions to follow. But that doesn't necessarily make them well-thought out partnerships.

  Minister of Finance Paul Chiu (邱正雄) ended months of speculation in the banking world by confirming earlier this week the merger of Bank of Taiwan (台灣銀|?, Land Bank of Taiwan (?g|a銀|? and Central Trust of China (??央信託局).

  Chiu gave three reasons for the merger. First, "These three banks are all state-owned organizations, so there won't be any problems with the exchange of stocks," Chiu said.

  Second, he said, "None of the banks have been incorporated, which could save considerable costs in the execution of the merger."

  And finally, in light of Taiwan's expected entry into the WTO, this merger will help increase the competitiveness of the nation's banking industry in the international arena.

  "The deposit and loan business of the three banks also complement each other to some extent," Chiu said.

  But while the logic of the merger might be clear to the finance ministry, banking analysts aren't so sure.

  "It's more symbolical than substantial," said Norman Yin (殷?D?), professor of banking at Cheng-chi University. "I can't see any benefits in this merger; it's just a merger case to be used as a model for other banks to follow."

  But for Chiu, benefits will emerge. After the merger, the new bank would rank among the top 75 banks worldwide in terms of equity value.

  "That could lower the cost of raising capital in the international money market," he said.

  Chiu also denied local newspaper reports of massive lay-offs following the merger. Together, the three banks employ roughly 14,300 people.

  But that, according to Yin, is one of the problems.

  "The basic purpose of a merger is to cut costs and increase operating efficiency. If the merger doesn't cut the number of employees in overlapping positions, and only involves a reshuffle of top management, it's not going to be cost-effective," Yin said.

  Nevertheless, for all its inadequacies, now that the all-important first merger has been given the go-ahead, future mergers are likely to follow.

  MERGERs AWAIT LAW

  But for additional mergers to take place, the legislature must first pass the Financial Institutions Merger Law (金融機構|X併法).

  After the law is enacted, domestic banks will be able to acquire a 100 percent stake in other banks, Chiu said.

  "After Taiwan enters the WTO, a foreign bank could also take over a domestic bank based on the same regulation. There will be no discrimination against foreign banks, and foreign banks will receive national treatment," he said.

  Analysts say a number of foreign banks have shown an interest in acquiring domestic banks. But since the present regulations forbid any shareholder from acquiring more than a 15 percent stake in any domestic bank, no such merger could take place until the financial regulations are revised.

  UK-based Standard Chartered Bank is one bank that has stated an interest in Taiwan's banking market, but has denied recent reports of a merger with Chinfon Bank (慶?銀|?.

  In the securities industry, last month's merger between Yuanta Securities (??j證券) and Core Pacific Securities (京華證券) set the example for other securities companies in Taiwan to follow.

  Chinatrust Commercial Bank's (??國信託商銀) subsequent announcement of its take-over of Bao Chen Securities (寶|並狳? earlier this month then set a precedent for mergers between banks and brokers.

  The mergers highlight the intense competition in both industries and the need to merge for survival.

  "The highly competitive environment in the securities market has made mergers between securities companies a must in the near future," said Yeh Chin-hai (?2M海), president of Yon Chang Securities (永昌證券). "As many as 30 percent of the more than 200 securities companies will vanish in the next year or two. Most of them will have merged with larger securities companies," he said.

  "Internet trading will certainly threaten the survival of hundreds of small brokerages, and it will be the impetus for mergers in the industry."

  Several major factors are also likely to encourage mergers between banks and securities companies.

  "The banking industry has to diversify its revenue sources, and the securities market is one of the most profitable sources," said Cheng-chi University's Norman Yin.

  Meanwhile, as a wave of mergers sweeps through the finance industry, the domestic insurance industry may miss out, according one industry analyst.

  "For the time being, there is no significant impetus for them to merge," the analyst said.

  "Large-sized insurance companies have no interest in small-sized companies, and small insurance companies are still struggling to survive. As a result, no synergy exists for them to merge."

  That prognosis doesn't necessarily apply to foreign insurance companies.

  The recent acquisition of Chinfon Life Insurance (慶??H1? by Prudential Assurance Group of the UK (-^國保誠?H1? could be the model merger for other foreign companies who want to take over a local insurance firm.
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