Taiwan's biggest life insurance company, Cathay Life Insurance has announced that its board of directors have voted to include Capital Securities into a new financial holding company, Cathay Financial Holding.
"This move is an important indication that consolidations in Taiwan's financial sector are now a rising trend," says James von Moltke, head of financial institutions group (FIG), Asia Pacific at JPMorgan, which is acting as financial adviser to Cathay Life on the restructuring.
There are too many banks and over 200 securities houses in Taiwan, and while there has been much talk of consolidation in recent years, little progress has been made.
However, under the spur of Taiwan joining the World Trade Organization early next year and opening its markets to foreign competition, the pace of consolidation has recently increased.
"Cathay Life has been a sleeping giant, but through this consolidation it will come closer to realize its true potential," says von Moltke. He adds that the new, enlarged customer base should provide extensive cross selling opportunities and other synergies.
The merger is set to become effective on November 1, the date on which Taiwan's new Financial Holdings Companies Law becomes effective. The law was passed in early July this year. It permits holding companies to be comprised of insurance companies, securities firms as well as commercial banks and is expected to drive many of the smaller independent firms which cannot form themselves into a financial super market out of business.
Until now, there have been few mergers in Taiwan's financial sector since most companies are immune to hostile takeovers and do not want to lose their independence.
"But both management structures in the case of Cathay Life and Capital will not be in conflict, as they are in different industries," von Moltke comments.
A specific exchange ratio has not yet been announced, but both companies say a "mutually agreeable exchange ratio" will be agreed on soon.
Cathay Life is Taiwan's largest insurance company with an existing market capitalization of around $6.3 billion, and assets of $31.5 billion as of June this year.
Capital Securities is one of Taiwan's top securities brokers with a market capitalization of around $400 million and an asset base of $1.3 billion. The company provides securities broking, underwriting, dealing, margin lending, research and corporate advisory services.
In September in the first consolidation on the island, Bank Sinopac, Sinopac Securities and National Securities combined to form SinoPac Holdings. The combined entity will become the third largest securities brokerage, with a market share of 5%, and the largest electronic securities brokerage with a market share of 16%.
