No advisers required

TaiwanÆs big bank merger has everything except M&A advisers.

In Taiwan’s most significant bank merger yet, no M&A advisers have been appointed. The merger of First Commercial Bank, Pan Asia Bank and Dah An will create a bank controlling 9% of the country’s banking sector. However, bankers remain puzzled that no advisers were used on a transaction that one banker described as coming “out of the blue”.

On the positive side, the merger will boost the government’s policy of restructuring the country’s fragmented banking sector – there are 53 commercial banks in Taiwan. It is clearly a government-driven transaction. First Commercial Bank is 39.36%-owned by the government and is one of three listed-but-state-influenced banks – the others are Chunghwa and Hua Nan.

In this three-way merger, which will create the newly titled First Bank, the troubled Pan Asia will be absorbed by First Commercial Bank. This makes sense. However, analyst are more puzzled by the inclusion of Dah An.

Dah An is a listed, non-government bank, which is not in the least troubled. It is connected with the family that runs Winbond Electronics, but is reckoned to be the least family-influenced bank of the 16 that were given new banking licenses in the early 1990s.

Last year it recruited a whole new management team, including a new president, Chao Yuan-Chi, who came from Citibank. The bank was the leader in taking write-offs for non-performing assets in 1999, and according to one foreign investment banker, this deal comes as a major surprise, as Dah An had been talking to foreign investment banks about some very different merger possibilities.

If it is not clear what Dah An has to gain from the deal, it is very clear that from the government’s perspective it makes First Commercial’s financials look much better.

First Commercial has significant unrealized gains on its balance sheets from land and equity holdings. Normally, if these were realized they would be hit by tax. However, the merger law specifies that unrealized gains can be taken free of tax, and so the merger will give First Commercial a tax-free method to realize gains and offset them against loan losses. Loan losses can be amortized over 15 years.

So in that sense, the merger will prove very beneficial for First Commercial and also hurry along the restructuring of Taiwan’s banking sector – satisfying two government goals at the same time. But given the lack of details on price, it is less certain what Dah An has to gain from the deal.

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