Taiwan's Fubon Bank Takes Control of HK's International
Bank of Asia
Taiwan's Fubon Financial Holdings bought a 55 percent
stake in International Bank of Asia held by Arab Banking
Corp. This marks the first time that a Taiwan bank has
taken over a Hong Kong bank. It will make a general offer
for the bank at HK$3.68 per share, which values the bank
at HK$4.31 billion, or about 1.16 times the book value
of the bank.
Hong Kong's banking sector has been dominated by a large
number of small, closely-held family banks. The Hong Kong
government has pushed mergers to streamline the sector;
this is the first significant move.
Fubon wants to expand its presence in the Hong Kong market,
and then use International Bank of Asia as a springboard
into the mainland China market. Taiwan's present banking
regulations do not allow Taiwan banks to do business directly
with mainland Chinese banks, but the Taiwan government
has been slowly loosening the regulations. Under current
regulations, several of Taiwan's banks, including government
controlled banks, are allowed to open representative offices
which are limited to gathering information.
Commenting on the Fubon move, officials of Taiwan's Ministry
of Finance said that Fubon would not be allowed to use
International Bank of Asia to get entry to China, even
if IBA is a subsidiary of Fubon. But, there are reasons
to doubt the threat behind the ministry's officials statements.
In July, China signed the Closer Economic Partnership
Agreement with Hong Kong. Under this agreement, the asset
requirement for Hong Kong banks setting up operations
in China would be lowered from US$20 billion to US$6 billion
to give Hong Kong banks preferential access to the China
market. The $20 billion asset requirement would be required
for banks from other countries and regions.
Under President Chen Shuibian, Taiwan has pursued an
erratic policy towards China. On the political front,
he has steadfastly refused to accept China's principle
of one China as a pre-condition for negotiations. On the
other hand, Taiwan businesses and individuals
continue to move to China as a manufacturing center and
workplace. It is estimated that companies from Taiwan
have invested more than US$100 billion in China. Almost
all the money was transferred through non-Taiwan banks
through third countries, and Taiwan banks want to get
a piece of the action.
Adding to Chen's, and the Ministry of Finance headaches
are the fact that Citigroup holds an 11 percent stake
in Fubon. If the MOF draws a hard line on this issue several
years from now, what will that do with to the relationship
with Citigroup?
China Business Stategy believes that
Taiwan's MOF will allow a closer relationship with Chinese
banks in the near future, and that the threats are mere
posturing directed at the local Taiwan media. Obviously,
they don't want all Taiwan banks to pursue the same strategy
now.
Any policy changes will hinge on the results of Taiwan's
presidential elections, to be held in March of next year.
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