VZCZCXRO2220
RR RUEHGH
DE RUEHIN #1324/01 1630733
ZNR UUUUU ZZH
R 120733Z JUN 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 5606
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3722
RUEHBJ/AMEMBASSY BEIJING 6902
RUEHUL/AMEMBASSY SEOUL 8714
RUEHGP/AMEMBASSY SINGAPORE 6924
RUEHKO/AMEMBASSY TOKYO 8851
RUEHML/AMEMBASSY MANILA 0078
RUEHJA/AMEMBASSY JAKARTA 4087
RUEHKL/AMEMBASSY KUALA LUMPUR 3757
RUEHHI/AMEMBASSY HANOI 3328
RUEHBY/AMEMBASSY CANBERRA 4531
RUEHWL/AMEMBASSY WELLINGTON 1804
RUEHHK/AMCONSUL HONG KONG 8160
RUEHGH/AMCONSUL SHANGHAI 1153
RUEHGZ/AMCONSUL GUANGZHOU 0328

UNCLAS SECTION 01 OF 02 TAIPEI 001324 
 
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:  Taiwan Auctions 2nd Insolvent Bank in 2007 
 
REF:  TAIPEI 1270 
 
SUMMARY 
------- 
 
¶1.  In early June Taiwan financial regulators successfully auctioned 
off the Taitung Business Bank (TBB).  ABN AMRO Bank became the first 
foreign bank to win bidding for a problem bank and will become third 
largest foreign bank in Taiwan after it takes over TBB.  TBB was the 
second insolvent bank auctioned within ten days, largely depleting 
Taiwan's RTC funds.  Another five problem banks still need 
resolution.  END SUMMARY. 
 
Two Banks Auctioned in Ten Days 
------------------------------- 
 
¶2.  The Taiwan Central Deposit Insurance Corporation (CDIC) 
auctioned TBB to ABN AMRO on June 8.  ChinaTrust Commercial Bank 
(CCB) won an auction for Enterprise Bank of Hualien (EBH) (reftel) 
at the end of May.  EBH, TBB, and Chinese Bank were three insolvent 
banks placed in receivership in early January 2007.  The CDIC will 
auction Chinese Bank in July or August. 
 
Cost and Compensation 
--------------------- 
 
¶3.  The bidding for TBB (as with EBH) was for the compensation 
wanted to cover the insolvent bank's liability gap (i.e., the excess 
of debts over assets).  ABN AMRO Bank wanted to take over TBB's 32 
bank branches and assume TBB's liability gap of NT$10 billion 
(US$303 million) for CDIC compensation of NT$6.9 billion (US$209 
million).  Thus, ABN AMRO Bank will pay about NT$97 million for each 
branch, slightly less than the NT$116 million (US$3.5 million) paid 
by CCB for acquisition of EBH branches. 
 
Foreign Banks Increase Market Share 
----------------------------------- 
 
¶4.  ABN AMRO Bank will take over TBB within 100 days.  The takeover 
will increase the number of its branches from five to 36, behind 
only Standard Chartered Bank's 86 branches and Citibank's 65 
branches.  Standard Chartered Bank acquired Hsinchu International 
Bank late last year, and Citibank acquired Bank of Overseas Chinese 
in March 2007.  The three mergers will increase the number of 
foreign banks' banking offices from 96 to 230, and their combined 
market share (in terms of banking offices) will increase from less 
than 3% to over 8%. 
 
Depleting RTC Funds 
------------------- 
 
¶5.  The CDIC will pay NT$11.4 billion (US$345 million) to compensate 
CCB and ABN AMRO Bank for taking over EBH and TBB.  The 
reimbursement will reduce Taiwan's RTC funds to NT$28.6 billion 
(US$867 million), insufficient to address the five remaining problem 
banks, according to the Banking Bureau (BB).  The five problem banks 
include a bank and a trust company placed in receivership in early 
2007 and three banks under BB surveillance. 
 
COMMENT 
------- 
 
¶6.  Due to insufficient RTC funding, Taiwan will need to rely on 
other methods to resolve problem banks.  It will likely continue to 
maintain strict branching restrictions to encourage good banks to 
acquire bad banks for expansion. 
 
 
TAIPEI 00001324  002 OF 002 
 
 
YOUNG