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June 23, 2017

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CTBC's latest merger to make strides in Q2: analysts

TAIPEI, Taiwan -- Although the government is delaying approval of CTBC Financial Holding's (中信金控) recent purchase of the Taiwan Life Insurance Co. (台灣人壽) and Japan's Tokyo Star Bank, analysts expect progress will be made in the second quarter.

The Financial Supervisory Commission (FSC), Taiwan's top financial regulator, recently said it is delaying approval of CTBC Financial's merger with Taiwan Life and Tokyo Star Bank after finding internal-control breaches at CTBC's banking unit.

An FSC banking official said recently that the bureau's consideration of the deal has been put on hold along with all investments by CTBC Bank Co. (中國信託銀行) "until corrective measures are taken and recognized by us."

CTBC Bank Co., a unit of Taiwan's fourth-largest publicly traded financial company by market value, was fined NT$10 million and restricted from setting up overseas units until the situation is rectified, an FSC statement said.

According to the Central News Agency, CTBC Bank's failed internal protocols allowed bank managers to hide control of a Shanghai-based company from board members.

The penalties may delay a planned US$1.4 billion expansion by the lender and its parent. CTBC Financial announced last October the proposed acquisition of Taiwan Life and Tokyo Star Bank in a move to diversify and reach beyond its crowded home market.

Merger Schedule Will Not Be Delayed: CTBC

CTBC Financial plans to make improvements in accordance with the FSC's conclusions, the company said in an earlier filing with the Taiwan Stock Exchange. CTBC Financial spokeswoman Rachael Kao (高麗雪) told local media that the company's purchase plan for Tokyo Star and Taiwan Life remains unchanged.

Analysts don't think the FSC's move will hinder the consensual acquisition of Taiwan life.

It may take one to three months for the suspension to be lifted because the lender needs to end its contract with the Shanghai company and change internal rules, the FSC said.

It is estimated that CTBC will submit an improvement plan in the first quarter to win the trust of the FSC, since it will need the FSC's approval on further expansion efforts into overseas markets including mainland China. Analysts widely believe that the merger with Taiwan Life will advance in the second quarter.

In late 2013, the FSC approved CTBC's bid to acquire a 98.15-percent stake in Tokyo Star Bank. According to CTBC's roadmap, the acquisition procedure will be completed before the end of 2014.

Following the deal, CTBC stands to gain Taiwan Life's subsidiaries, including its non-life insurance arm TLG Insurance (台灣保產險), its China-based King Dragon Life Insurance Co. (君龍人壽) and Taiwan Life's overseas business units in Hanoi and Beijing. The acquisition of Tokyo Star would provide CTBC with a presence in the Northeastern Asia region.

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