Taiwan bank M&A on way after years of false starts http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyID=2006-10-20T052251Z_01_T172304_RTRIDST_0_BUSINESSPRO-FINANCIAL-TAIWAN-DC.XML&from=business
Fri Oct 20, 2006
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By Brian Kelleher and Faith Hung
TAIPEI (Reuters) - Taiwan's crowded banking sector, saddled with a soured credit boom and increasing competition, is turning to private equity firms and international lenders to kick-start a consolidation wave that was a long time coming.
The country's overcrowded banking sector has attracted bids from Standard Chartered (STAN.L: Quote, Profile, Research), Singapore's Temasek (TEM.UL: Quote, Profile, Research), buyout house TPG Newbridge and Japan's Shinsei Bank (8303.T: Quote, NEWS, Research) this year, with Citigroup (C.N: Quote, Profile, Research) also waiting in the wings.
"They feel that Taiwan's financial services industry, the quality of the people there and the practices, is relatively strong," Yen Ching-chang, chairman of Fuhwa Financial Holding Co. (2885.TW: Quote, Profile, Research), said at a Reuters event on Wednesday.
The deals come about five years after market watchers first began talking up industry consolidation, with the government now promoting foreign investment in earnest.
Taishin Financial Holding. (2887.TW: Quote, Profile, Research), Chinatrust Financial Holding Co. (2891.TW: Quote, Profile, Research), Fubon Financial Holding Co. (2881.TW: Quote, Profile, Research) and Mega Financial Holdings (2886.TW: Quote, Profile, Research) will likely emerge among the survivors in Taiwan's banking sector, market watchers said.
That leaves rivals like Hua Nan Financial (2880.TW: Quote, Profile, Research) and Fuhwa Financial (2885.TW: Quote, Profile, Research) to find a niche or merge with bigger rivals.
STATE BANKS A TOUGH SELL
The M&A process is being quickened by overseas money, but they have their work cut out for them if they target Taiwan's big state-run banks, said Liu Teng-cheng, a deputy minister at Taiwan's Ministry of Finance.
"It is simply too tough for foreign banks to buy state-run lenders," he said at a Reuters event. "Major obstacles include opposition from legislators and bank unions. But even so, foreign investors are still interested."
Interest from foreign banks and private equity funds has heated up this year in Taiwan's banking sector, whose revenues totaled US$29 billion in 2005, the fourth largest in Asia.
The difficulties of buying big state-owned banks like Mega Financial and First Financial (2892.TW: Quote, Profile, Research) have driven foreign investors to smaller privately run lenders, for now.
StanChart (2888.HK: Quote, Profile, Research) agreed to pay US$1.2 billion -- a 31 percent premium -- for Hsinchu International Bank (2807.TW: Quote, Profile, Research) last month, upping the ante for Citigroup, which is negotiating to buy Bank of Overseas Chinese (5818.TWO: Quote, Profile, Research) for more than US$400 million. Click <ID:nPEK342615> for details. "Standard Chartered offered a very high price for Hsinchu, as it would not be easy to go with a state-owned bank," Liu said.
Buyout shops are also prowling for takeover candidates after TPG Newbridge, the Asian arm of U.S. buyout firm Texas Pacific Group (TPG.UL: Quote, Profile, Research), paid US$844 million for a stake in Taishin.
"Private equity funds are coming to Taiwan for two major reasons," said Jerry Guo, head of Taiwan investment banking for UBS. (UBSN.VX: Quote, Profile, Research) "Taiwan needs restructuring in certain sectors. Private equity can put in the money and save the costs. At the same time, they also have consolidation opportunities."
Bank and insurer deals have accounted for 41 percent of Taiwan's US$11.4 billion in M&A activity this year and 43 percent of a US$16.6 billion market in 2005, according to Dealogic.
Foreign firms are entering a market just emerging from a credit card crisis -- revolving credit fell to T$387.3 billion (US$11.7 billion) in August, down 20 percent from a year earlier -- but overseas players also see a growth market.
"Foreign banks are betting on Taiwan banks to increase their wealth management business," said Huang Hsien-chuan, president of First Financial Holding Co. (2892.TW: Quote, Profile, Research).
"Their targets are people in central and southern Taiwan because there are many wealthy people there."
(Additional reporting by Doug Young)
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