M&A: Banking on Taiwan

The deal with result in Carlyle becoming Ta Chong's largest shareholder if the deal completes.But the Taiwan banking sector is in an uncertain phase. The sector is struggling to recover from widespread bad debt. Many banks have had to simply write off substantial amounts, leaving them with realistic but weak balance sheets. Fitch, the US rating agency, says that Ta Chong had more than GBP40 million in bad and doubtful debt still on its book as at the end of 2006. But as the market becomes to look increasingly attractive to foreign investors, particularly those looking at a long game concerning possible exposure to China or, even, China access there is a big outstanding question.How will Taiwan's Central Bank view the possibility of a new Chinese Takeaway? And, if that happens, how will it view its banks becoming targets of either Chinese or China-Connected Hong Kong banks.So far, regulators are remaining tight-lipped. But there is a connected issue that may inform their decision: as of May 2007, the Offshore Banking Unit sector is rocketing ahead. The CBC says that the combined assets of all OBUs amounted to a record UUS82.816 milliard, an increase of some USD11.6 milliard. The CBC says "In terms of the area of origin, Asia accounted for 72%, followed by America for 21%, Europe for 6%, and other areas for 1%." Equally, importantly "The total value of all outstanding loans made by OBUs at the end of May 2007 was US$22.176 milliard, of which 96% was extended to overseas clients, including long-term loans for US$12.910 milliard and short-term loans for US$8.291 milliard. The remaining 4% was extended to local clients for US$975 million."Also, the offshore banking units have been especially active in derivatives: "The turnover of other derivative products trading by all OBUs in May 2007 was US$13.773 milliard including (1) financial futures for US$7.517 milliard, (2) options for US$5.914 milliard, (3) foreign currency interest rate swaps for US$183 million, (4)equity swaps for US$62 million, (5) margin account trading for US$51 million, (6) credit derivatives for US$30 million, (7) commodity swaps for US$14 million, and (8) cross currency swaps (not involving NT dollars) for US$2 million."

M&A in the financial services indusry - Conference Hong Kong, October 2004.