VZCZCXRO9420
RR RUEHGH
DE RUEHIN #0791/01 1000945
ZNR UUUUU ZZH
R 100945Z APR 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 4819
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3642
RUEHBJ/AMEMBASSY BEIJING 6621
RUEHUL/AMEMBASSY SEOUL 8564
RUEHGP/AMEMBASSY SINGAPORE 6861
RUEHKO/AMEMBASSY TOKYO 8654
RUEHML/AMEMBASSY MANILA 0022
RUEHJA/AMEMBASSY JAKARTA 4065
RUEHKL/AMEMBASSY KUALA LUMPUR 3713
RUEHHI/AMEMBASSY HANOI 3297
RUEHBY/AMEMBASSY CANBERRA 4489
RUEHWL/AMEMBASSY WELLINGTON 1751
RUEHHK/AMCONSUL HONG KONG 7870
RUEHGH/AMCONSUL SHANGHAI 0982
RUEHGZ/AMCONSUL GUANGZHOU 0156

UNCLAS SECTION 01 OF 02 TAIPEI 000791 
 
SIPDIS 
 
SIPDIS 
 
STATE PLEASE PASS USTR 
STATE FOR EAP/RSP/TC, EAP/EP 
USTR FOR ALTBACH and Stratford 
USDOC FOR 3132/USFCS/OIO/EAP/WZARIT 
TREASURY FOR OASIA/LMOGHTADER 
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF 
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN AND NY FRB MARIA 
BOLIS 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON PINR TW
SUBJECT:  Another Taiwan Bank in Receivership 
 
REF: (A) TAIPEI 0049, (B) 06 TAIPEI 4175 
 
SUMMARY 
------- 
 
¶1.  At the end of March, Taiwan added a fourth bank to those put 
into receivership in the past four months.  Another three banks 
designated as insolvent in July 2005 are still undergoing 
resolution.  Taiwan's inadequate resolution mechanisms will likely 
force state-owned banks to take over some of the problem banks.  END 
SUMMARY. 
 
Receivership 
------------ 
 
¶2.  On March 30, Taiwan's Financial Supervisory Commission (FSC) put 
China United Investment and Trust Corporation (CUIT) into 
receivership after its net worth turned negative in March.  Due to a 
shortage of manpower and funds, the Central Deposit Insurance 
Corporation (CDIC) contracted the 100% state-owned Bank of Taiwan 
(BOT) to take over CUIT with an 11-member team. 
 
Funding from BOT 
---------------- 
 
¶3.  To prevent a run on CUIT, the CDIC guaranteed 100% protection 
for deposits at CUIT, and BOT pumped NT$10 billion (US$300 million) 
of cash into CUIT.  At the CDIC's request, BOT, which already 
provided CUIT NT$5 billion (US$150 million) in February, will supply 
additional cash if withdrawals from CUIT increase.  The CDIC will 
repay BOT for the funds BOT advanced to CUIT during the entire 
process of receivership. 
 
Insolvency 
---------- 
 
¶4.  FSC Chairman Hu Sheng-cheng said that CUIT had exhausted its 
liquidity by the time of BOT's assuming management control of CUIT 
on March 30.  CUIT's net worth was negative NT$2.98 billion (US$90 
million).  Its non-performing loan (NPL) ratio was 11.5%, much 
higher than the limit of 5% tolerated by the FSC.  Its NPL reserves 
as a share of total NPLs was 30%, also below the minimum 40% 
required by the FSC. 
 
Open Bidding 
------------ 
 
¶5.  As previously announced for the three other banks recently 
placed in receivership (reftels), FSC plans to sell CUIT through an 
open bid process.  A consultant will be contracted to assess CUIT 
and recommend auction procedures.  The three banks previously put 
into receivership are Enterprise Bank of Hualiwn (EBH), Taitung 
Business Bank (TBB), and Chinese Bank.  The bidding and sale of 
these three is expected be completed in Q3 of this year, according 
to the FSC. 
 
Three Banking Institutions Pending Resolution 
--------------------------------------------- 
 
¶6.  Three more banking institutions with poor financial quality are 
still pending resolution.  These three banks' NPL ratios all exceed 
10% and their NPL reserve ratios are well below 40%.  The FSC has 
not put them into receivership because they still report positive 
net worth.  However, the FSC has instructed these three banks to 
improve significantly prior to the end of this year.  In response to 
the FSC instruction, Bowa Bank is seeking funding support from 
Safuan (Malaysia).  Chinfon Bank is attempting to obtain additional 
 
TAIPEI 00000791  002 OF 002 
 
 
capital from AIG (of the United States), ING (of the Netherlands), 
or United Overseas Bank (of Singapore), and Asia Trust and 
Investment is looking for new major shareholders. 
 
Comment 
------- 
 
¶7.  The FSC cannot resolve the seven problem banks with the NT$40.8 
billion (US$1.2 billion) remaining in Taiwan's Financial 
Reconstruction Fund (FRF), which is similar to the Resolution Trust 
Corporation in the U.S.  Lacking sufficient financial resources, the 
FSC has tried to encourage bank consolidation through restricting 
banks from establishing new branches.  However, it now appears 
likely that FSC will use state-owned banks to take over the problem 
banks. 
 
WANG