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Editorial:
Restructuring the financial industry
The government has long proclaimed that one of its policies is to promote the
consolidation of the nation¡¦s fragmented financial industry and boost domestic
lenders¡¦ global competitiveness. However, it is often the government itself that
stands in the way of achieving these goals.
Last month, the privately owned Taishin Financial Holding Co renewed its efforts
to merge its flagship subsidiary, Taishin International Bank, with state-owned
Chang Hwa Commercial Bank. It made a proposal to the Ministry of Finance, Chang
Hwa Bank¡¦s second-largest shareholder, to support the idea of Chang Hwa Bank
acquiring Taishin Bank.
When Taishin Financial bought a 22.55 percent stake in Chang Hwa Bank in 2005,
it proposed that Taishin Bank take over the larger state-run business, but that
plan was shelved because of objections from Chang Hwa Bank¡¦s union, and due to
controversy related to the second phase of financial reforms initiated by
then-president Chen Shui-bian (³¯¤ô«ó).
The ministry objected to Taishin Financial¡¦s new offer on the grounds that it
was not in the interests of Chang Hwa customers, shareholders and employees,
saying it was only a scheme to help expand Taishin Financial¡¦s influence over
the state-owned bank. The ministry also changed directors sitting on Chang Hwa¡¦s
board to prepare for a possible boardroom battle.
However, does any law prevent Taishin Financial from pursuing a merger of the
two banks?
Had the government approved the share sale seven years ago, would Taishin
Financial have invested its funds to assist in clearing Chang Hwa¡¦s bad assets
and help turn the bank around?
Let us assume that the ministry¡¦s concern about Chang Hwa shareholders and
employees was a well-intentioned effort to keep government shareholdings intact
¡X who can protect the interests of Taishin Financial shareholders and employees?
Why is the government so preoccupied with reducing its stakes in state-owned
banks? Isn¡¦t its policy to expand the scale of domestic lenders and enable them
to compete in regional or global markets?
Concern about the financial consolidation process benefiting certain large
conglomerates is inevitable, but can the government assure the public that these
consolidations will be carried out efficiently and fairly? The government¡¦s
preoccupation with the possibility of private investors and conglomerates taking
advantage of state-owned banks is just an excuse for it to do nothing.
Although the ministry has said it encourages financial consolidation, the
message given by its objection to Taishin Financial¡¦s latest offer signifies a
backing away from this policy.
The government is creating perception problems for itself by giving the
impression that it is committed to financial reforms when in reality it is not,
suggesting it is incompetent and irresponsible.
More troubling is whether businesses will continue to trust government pledges
and keep participating in government-initiated investment projects.
There is no ¡§too-big-to-fail¡¨ problem in Taiwan¡¦s financial industry, which is
overly crowded and lacks dominant banks that can compete with foreign rivals.
However, can the government ensure a level playing field while pursuing
financial consolidation?
There is consensus among the public that the government should deregulate the
financial industry to meet the diverse demands of society and assist the economy
in the long term.
The government can look at ways to fine-tune its deal with Taishin Financial
concerning the Chang Hwa Bank debacle, but by taking no action and stepping away
from the financial consolidation policy it will simply create a ¡§lose-lose¡¨
situation for itself and the financial industry.
It does not require much intelligence to recognize that the government is in
danger of creating distrust.
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