VZCZCXYZ0030
RR RUEHWEB

DE RUEHIN #3595/01 2930732
ZNR UUUUU ZZH
R 200732Z OCT 06
FM AIT TAIPEI
TO SECSTATE WASHDC 2687

UNCLAS AIT TAIPEI 003595 
 
SIPDIS 
 
INFO USDOC WASHDC 
AMEMBASSY BANGKOK 
AMEMBASSY BEIJING 
AMEMBASSY SEOUL 
AMEMBASSY SINGAPORE 
AMEMBASSY TOKYO 
AMEMBASSY MANILA 
AMEMBASSY JAKARTA 
AMEMBASSY KUALA LUMPUR 
AMEMBASSY HANOI 
AMEMBASSY CANBERRA 
AMEMBASSY WELLINGTON 
AMCONSUL HONG KONG 
AMCONSUL SHANGHAI 
AMCONSUL GUANGZHOU 
DEPT OF TREASURY WASHDC 
 
SIPDIS, SENSITIVE BUT UNCLASSIFIED 
 
STATE PLEASE PASS AIT/W AND USTR 
 
STATE FOR EAP/TC, EAP/EP 
 
USTR FOR ALTBACH 
 
USDOC FOR 4420/USFCS/OCEA/EAP/LDROKER 
USDOC FOR 3132/USFCS/OIO/EAP/ADAVENPORT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY PLEASE PASS TO OCC/AMCMAHON 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  M&A by Foreign Financial Institutions 
 
 
SUMMARY 
------- 
 
¶1.  London-based Standard Chartered Bank (SCB) recently announced it 
will totally acquire Taiwan's Hsinchu International Bank (HIB) in 
October 2006 by purchasing equity shares in Taiwan's stock market. 
A dozen foreign investors have acquired significant equity in six 
Taiwan banking institutions through private placement so far this 
year, and several other merger and acquisition (M&A) deals for 
Taiwan banks involving foreign investors are under negotiation. 
Taiwan officials claim that it's the low prices and good quality of 
local banks that attract foreign investors, but the links to 
China-based Taiwan-invested companies certainly adds to the appeal. 
End summary. 
 
First Acquisition through Stock Market Trading 
--------------------------------------------- - 
 
¶2.  In late September 2006, SCB obtained permission from Taiwan's 
Financial Supervisory Commission (FSC) to acquire HIB through open 
trading at a price of NT$24.5 (74 US cents) per share in Taiwan's 
stock market in October.  SCB hopes to obtain 100% ownership in HIB 
and subsequently de-list HIB from Taiwan's stock market.  However, 
SCB will give up the acquisition plan if it fails to obtain over 51% 
of HIB ownership prior to October 31.  HIB ranks 27th among Taiwan 
banks in terms of net worth and has 82 local branches. 
 
Significant Foreign Interest in Taiwan Banks 
-------------------------------------------- 
 
¶3.  In 2006 prior to SCB's acquisition announcement, 12 major 
foreign investors have acquired significant equity in six Taiwan 
banking institutions through private placement, according to the 
Banking Bureau.  In January 2006, GE Consumer Finance (U.S.) 
acquired 24.9% ownership in Cosmos Bank and has since participated 
in operation of the bank and its 62 branches. 
 
¶4.  In March, New Bridge (U.S.) and Nomura Securities (Japan) 
obtained a total of 23% ownership in Taishin Financial Holdings 
(TFH).  The major local shareholder (Thomas Wu) continues to control 
and opeate TFH.  Taishin International Bank, a TFH subsidiary, 
operates 100 local branches and three overseas offices. 
 
¶5.  In March, Tamasek Holdings (Singapore) purchased 15% equity in 
¶E. Sun Financial Holdings (ESFH).  Major local shareholders continue 
to operate ESFH whose subsidiary E. Sun Bank has 98 local branches 
and two overseas offices. 
 
¶6.  In May, Shinsei Bank (Japan) obtained 42% ownership in Jih Sun 
Financial Holdings (JSFH) and since then has installed its own line 
managers in JSFH subsidiary Jih Sun International Bank, which has 35 
local branches. 
 
¶7.  In June, Dai Ichi Mutual Life (Japan) obtained 6.5% ownership in 
Shin Kong Financial Holdings (SKFH).  Dai Ichi has provided SKFH 
with sophisticated technologies under a strategic alliance 
arrangement.  SKFH subsidiary Shin Kong Commercial Bank has 107 
local branches. 
 
¶8.  In September, eight foreign companies (including Singapore's CAM 
Financial Holdings) committed to supply Huanan Business Bank (HBB, 
which has negative net worth) with NT$5.3 billion (US$163 million) 
of capital.  The additional funding allowed HBB to avoid Central 
Deposit Insurance Corporation takeover. 
 
Cases under Negotiation 
----------------------- 
 
¶9.  Four bank M&As involving foreign investors are under 
negotiation.  In September, Citicorp revealed its intention to 
acquire equity in the Bank of Overseas Chinese (BOC) which ranks 
33rd among Taiwan banks in net worth and has 54 local branches. 
Deutsche Bank reportedly also intends to acquire equity in BOC. 
HSBC has reportedly entered into negotiation for acquisition of 
equity in Far Eastern Financial Holdings (FEFH) whose subsidiary Far 
Eastern International Bank has 35 local branches and one overseas 
office.  Three U.S. banks have reportedly started negotiations on 
acquisition of Taiwan's Chinese Bank which has a relatively poor NPL 
ratio of about ten percent.  Two U.S. banks have entered into 
negotiations on acquisition of Taitung Business Bank whose net worth 
is almost zero and which has an NPL ratio of 23% (one of the poorest 
ratios among Taiwan banks). 
 
Large Foreign Presence in Taiwan Banks 
-------------------------------------- 
 
¶10.  The average foreign ownership of banking institutions listed on 
the Taiwan Stock Exchange has reached 22%.  According to Banking 
Bureau officials, foreign portfolio investors (mainly large mutual 
funds) are attracted by the good quality of Taiwan banking 
institutions.  Taiwan bank's average NPL ratio remains below 2.5% 
and their average capital adequacy ratio remains above 10%, higher 
than the minimum 8% required by BASEL II.  Another factor identified 
by AIT contacts is that Taiwan bank share prices are one-third less 
than their counterparts in Hong Kong.  Another point of interest for 
foreign banks is Taiwan's high level of wealth accumulation, which 
offers a substantial market for asset management services.  For 
Taiwan's largest financial holdings, the percentage of foreign 
ownership has reached 53.6% for ChinaTrust, 42% for both for E. Sun 
and Jih Sun, 41.2% for Fubon, 38% for SinoPac, 35.7% for Cathay, 33% 
for Taishin, 30.5% for Shin Kong, and 25% for Mega. 
 
Comment 
------- 
 
¶11.  In spite of delinquent credit/cash card debt problems that 
eroded the profitability of banking institutions in Taiwan earlier 
this year, Taiwan banks remain attractive to foreign investors.  By 
acquiring a Taiwan bank, foreign investors gain a built-in clientele 
among the tens of thousands of Taiwan companies located in China. 
 
Young