TAIPEI
- Japan soon could hold the title of having the world's
largest bank after Mitsubishi Tokyo Financial Group,
Japan's biggest lender, merges with UFJ Holdings Inc as
planned. This would create the world's largest financial
group, larger than Citibank USA. In contrast to Japan,
which is reducing its total number of bank branches
through mergers and acquisitions, Taiwan still has 14
financial holding companies (FHC) and 50 banks for a
population of 23 million, making it vastly over-banked.
The proposed merger date between Mitsubishi
Tokyo and UFJ is September 2005, so there are 14 months
to go. UFJ reportedly has the worst bad-loan burden of
all banks in Japan, so there will much due diligence by
Mitsubishi Tokyo on UFJ over that period.
Taiwan, meanwhile, still has a banking industry
dominated by the three state banks, which are now called
FHCs, namely Changhwa, Huanan, and First Financial. The
three state banks control a majority of the
corporate-loans market, leaving the rest for the
private-sector rivals. These FHC shares are controlled
by the Ministry of Finance (MOF), so any final decision
on to whom to sell the shares (if and when they are
sold) rests with MOF in conjunction with the Legislative
Yuan. With the controversy over the narrow re-election
of President Chen Shui-bian in March still fresh in the
minds of the opposition Kuomintang (KMT), it is unlikely
that the KMT will give any handouts to Chen's Democratic
Progressive Party (DPP) in the form of an easy
legislative nod for a bank merger.
The
Japanese economy is growing very strongly, with the Bank of
Japan recently stating that the economy could grow
by 3.1% this year, as strong exports boost domestic
demand. This has provided a background for the merger
between Mitsubishi Tokyo and UFJ to proceed.
With any merger or acquisition there comes the
question of job losses, a sensitive issue in both Taiwan
and Japan. A Tokyo Mitsubishi-UFJ merger would lead to
the closure of hundreds of bank branches and several
thousand staff cut as a consequence. In Taiwan, First
Financial has the largest number of branches at 177,
followed by Huanan at 173 and Changhwa's 169, a huge
network of state-owned branches considering Taiwan has a
small population of 22 million and small land size. This
is compared with the largest FHC in Taiwan, the
private-sector Cathay FHC, which has only 119 branches.
In Japan, the number of bank branches has fallen
18% in the past decade to 14,060, according to the Japan
Bankers Association, while the number of full-time
employees at both large and regional banks is 302,000,
down 35% from 10 years ago. In Taiwan, the combined
total of staff working for the three state banks is
estimated at more than 22,000, so any
merger/acquisition, if and when it occurred, would
inevitably result in staff losing their jobs.
The branch network of the Taiwan state banks is
the main attraction for any one rival to buy, merge with
or acquire them, as the geographical reach of the state
banks is much greater than their private counterparts
such as Cathay or Chinatrust FHC. In an interview with
Dow Jones news wires, the new head of the recently
established financial regulator the Financial
Supervisory Commission (FSC), Kong Jaw-sheng, indicated
he planned to form "a deal team, with himself as a
member, to search for foreign banks interested in
merging with or acquiring local institutions".
This is despite the fact that Citibank, the
giant US investment bank, has recently announced it is
selling its estimated 10%-plus holding in a Taiwan FHC,
Fubon. Kong also said his goal "is to transform Taiwan
into a regional financial center". This dream to
transform Taiwan into a "regional financial center" has
being around for years but will be remain just that, a
dream. Taiwan has many banks (none of which are real
regional heavyweights), the New Taiwan dollar isn't a
major currency and it is tightly managed by the Central
Bank of China (CBC). All of these factors count against
Taiwan ever realizing this dream.
Recently in an
attempt to boost their branch networks, private
competitors of the state banks have being buying up
failed banks and local credit unions. E Sun Commercial
Bank recently took over failed Kaohsiung Business Bank,
boosting its bank-branch network to 104 from the
original 54. One local analyst commented, "I am
skeptical on whether its is worth it for E Sun
Commercial to assume those liabilities for these 60
branches given its limited disclosure." Chinatrust FHC,
Taiwan's largest issuer of credit cards, bought Fengshan
Credit Union, adding 10 branches to bring the total to
109. But the market speculation is that it paid a high
price per branch, estimated at US$5.04 million.
The trend in the banking industry worldwide is
for more Internet banking, fewer branches and hence less
staff. Year-end legislative elections in Taiwan will
prevent any real chance of major mergers and
acquisitions among the state banks. This is because any
change in ownership of shares must be approved by the
Legislative Yuan, still controlled by the opposition
parties. Further, if there is a merger/acquisition, the
sensitive issue of job losses will arise because state
employees are all members of labor unions that would
naturally oppose any retrenchments.
If the DPP
does win control of the Legislative Yuan in the December
elections, then we would at the earliest in first
quarter of 2005 expect a tentative deal for one of the
state banks to merge. Changhwa FHC, which has an
alliance in the funds-management area with Dutch
financial group ING, is one bank the market speculates
could be the first to go, but only at the right price.
Scott Ridley works for a financial
institution in Taiwan.
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