Speculation swirls over ICBC's bid for Cathay

Taiwanese media reported that Cathay Financial Holdings had been in talks with the Industrial and Commercial Bank of China to sell a 20 percent stake for up to US$3.0 billion.

Taiwan's existing law bans Chinese firms from direct investment in local banks.

However, such a deal may be possible under a proposed “Economic Cooperation Framework Agreement,” which calls for the removal of barriers between Taiwan and its former rival China for smooth flow of goods and personnel.

“It is grossly premature to discuss” the deal, an official of the Financial Supervisory Commission (FSC) was quoted by the United Evening News as saying.

The FSC is still studying the details of the memorandum of understanding (MOU) on financial cooperations China and Taiwan signed last month to allow China banks to establish branches in Taiwan, let alone investing in Taiwan financial companies, the official said. The MOU will come into effect in about 60 days after it's signed, the FSC pointed out.

However, Lai Shyh-bao, a senior ruling party Kuomintang legislator on parliament's financial committee, told AFP that discussions “may have been underway for a while, awaiting the proposed trade pact next year.”

Taiwan's China-friendly administration claims that the agreement could lift the island's economic growth by one percentage point.

However, the opposition, which favors independence from China, has warned the pact could imperil the island's separate status.

Cathay rose by the most in almost two months in Taipei trading after Reuters reported that ICBC's talk of buying a stake in the Taiwanese company.

Cathay Financial, Taiwan's largest publicly traded financial services firm, closed up 2.98 percent to NT$58.80 after earlier climbing as much as 3.9 percent, the most since Oct. 7. ICBC fell 1.1 percent in Shanghai.

ICBC, China's largest bank and the biggest in the world based on market value, is interested in buying a 20 percent stake in Taipei-based Cathay Financial, Reuters said yesterday, citing people it didn't identify. Talks are at an early stage, the news agency reported.

“The partnering with ICBC will help Cathay expand further in the Chinese market,” Nora Hou, an analyst at Deutsche Bank AG, wrote in a note late yesterday. “Realistically, we don't see the acquisition as likely to happen” because under current rules Taiwan doesn't allow cross-strait stake purchases.

ICBC press officer Wang Zhenning said yesterday he wasn't aware of any talks. Cathay Financial President Chen Tsu-pei, when reached on his mobile phone, declined to comment.

China and Taiwan last month agreed to ease restrictions on investments in banks, brokerages and insurers across the Taiwan Strait. The accord didn't provide any details on stake purchases in each others' financial institutions.

Beijing-based ICBC has spent more than US$6 billion on acquisitions in Indonesia, Macau, South Africa and Canada in the past two years as Chairman Jiang Jianqing seeks to boost income from outside its home market. Jiang said Nov. 13 that ICBC needs a “presence” in Taiwan and plans to expand there.

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