Fubon Financial plans to acquire local lenders

By Janet Ong, Bloomberg

TAIPEI, Taiwan — Fubon Financial Holding Co., which is buying ING Groep NV’s Taiwanese life-insurance business, plans to acquire local lenders as the government encourages mergers in the island’s financial industry.

“Taiwan’s banking industry needs further consolidation, and we position ourselves to be a consolidator,” Victor Kung, president of the Taipei-based company, said in a telephone interview. He declined to say whether Fubon is in talks or to identify acquisition targets.

Taiwan’s government wants to consolidate an industry in which 37 local banks, 32 foreign lenders and more than 300 credit associations compete to serve 23 million people. Fubon, the island’s second-largest financial-services company by market value, said Monday it agreed to pay US$600 million for ING Life Taiwan, expanding its customer base by about a third.

Fubon, which has declined 29 percent in Taipei trading this year, rose by the daily limit for the second day to NT$20.35, the highest since Oct. 6. Moody’s Investors Service changed the outlook on Fubon yesterday to “negative” from “stable,” citing the high-guarantee and long duration policies sold by ING Life Taiwan before 2001.

The policies will continue to drag on profitability and the capital adequacy of the combined entity in the near-to-medium term due to current low interest rates and an unfavorable investment environment, the ratings company said.

Standard & Poor’s yesterday placed Fubon group on “long term ratings on CreditWatch with negative implications” or on review for a possible credit rating downgrade.

“The CreditWatch placements reflect uncertainties on the group’s capitalization and ability to manage integration risks following the announcement of its intended acquisition of an insurance unit,” S&P’s credit analyst Susan Chu said in the statement.

Fubon plans to acquire Jih Sun Financial Holdings Co. in a share swap, the Commercial Times reported yesterday, without citing anyone. The all-stock transaction will probably be completed at the end of the month, with each Fubon share equaling about 3.5 to 4.5 Jih Sun shares, the Taipei-based, Chinese-language newspaper said. Kung and Clemens Chung, a spokesman at Jih Sun, declined to comment on the report.

“We would like to see one deal that would make us the market leader, but that kind of transaction is not always available,” Kung said.

Kung declined to say how much the company has earmarked for expansion or how it plans to fund acquisitions.

“In this market condition, we have to be very careful on the financing part of the consideration,” he said.

Fubon’s profit for the first nine months fell to NT$9.75 billion, or NT$1.26 a share, based on unaudited figures. The result compares with a profit of NT$14.7 billion, or NT$1.90 per share, a year earlier.