The Ministry of Finance has been given a deadline of December 31 to prepare a plan for the merger.
Responding to questions about the merger's synergy, MOF officials said that the Bank of Taiwan's strengths lie in corporate banking, international finance and foreign currency exchange, complementing Land Bank's focus on real estate financing and the Export-Import Bank's specialization in trade financing.
According to the MOF, the economy of scale resulting from the merger will enable the new holding company to boost productivity and broaden and deepen its reach into new markets. Such expanded capabilities will reduce operational costs, maximize stockholder equity and optimize risk management.
Sources at the ministry reported that Bank of Taiwan Chairman Tsai Jer-shyong is likely to head the combined group.
The MOF plans to complete the merger in three phases over a period of three years. In phase one, to be completed by Dec. 31, the life insurance and securities branches of Bank of Taiwan will be spun off to form two separate new companies, which will merge with the three constituent banks. In phase two, the Bank of Taiwan will take over subsidiaries of the Export-Import Bank. In phase three, subsidiaries of the Land Bank will merge with the larger holding company.
Following the premier's announcement, Deputy Minister of Finance Liu Teng-cheng remarked that the Taiwan Financial Holding Co. will be the world's 89th-largest, and Asia's 18th-largest, financial services company, its US$158.8 billion in assets, eclipsing the US$107.03 billion in assets of Cathay Financial Holding Co. Ltd., Taiwan's current financial market leader. Liu said the company will remain state-owned and will not issue stock.
Liu also noted that the main potential roadblock to this merger plan is posed by the law that governs financial holding companies. The law prohibits financial holding companies in Taiwan from engaging in short-term stock financial transactions for the purpose of making quick gains from stock price fluctuations. The Bank of Taiwan currently holds more than 25 percent of outstanding shares in Hwanan Bank, Taiwan Life Insurance and Financial Information Service Co. Ltd. The fact that these holdings are treated as short-term investments in the Bank of Taiwan's accounts could put the merger at odds with the law.
The merged company, with 14,200 employees, will have more than 300 branches in Taiwan and 16 branches overseas. Provisionally, there will be no workforce reductions, a common reason for employees to object to mergers.
Objections to the merger are coming from other quarters, however. Private financial holding companies have accused the government of giving a huge and unfair competitive advantage to the proposed state-owned company, claiming that it will be able to easily draw for free on the government's many resources. The public's full faith in the government's backing of the new holding company, by itself, will give it a tremendous advantage, lowering its credit-risk rating and cost of borrowing, and enabling it to offer to its customer more attractive credit terms and products than private competitors.
Write to Liu King-pong at kpliu@mail.gio.gov.tw