FinanceAsia Country Achievement Awards - Taiwan

Best Domesic Commercial Bank: Chinatrust Commercial

The banking sector in Taiwan has some, if not all, the problems of its equivalents in mainland China. Often used as instruments of capital allocation by the government, inefficient, overstaffed and rife with poorly analyzed loans, the sector was crying out for improvement in the run-up to the island s inclusion in the World Trade Organization (WTO). Also, with over 40 banks and many more non-bank financial institutions the sector is unhealthily crowded, although plans are afoot for the merger of several of the largest state banks.

Still, some things are improving. Government banks have had their monopoly grip on the financial sector loosened by the creation of over a dozen new banks. But the biggest and most profitable private bank is not one of these upstarts. Founded in the early 1960s, Chinatrust Bank lies at the core of the powerful Koo family s holdings. With assets of $20 billion at the end of 1999, Chinatrust ranks in the top 300 banks worldwide by size. In February of this year the bank announced that 2000 profits could rise by almost two-thirds from last year, buoyed by regional economic growth and revenue from new services.

That would be an increase of 63% on the group s earnings of over $200 million for 1999. Growth will be fuelled by increased use of internet and electronic commerce services.

The Koo family is one of the leading business entities in Taiwan, with a history stretching back to the Japanese occupation in the second world war. If modernization is the name of the game in Taiwanese banking, then Chinatrust can fairly claim to be well ahead of the curve. Interestingly, the impulse came less from the chairman of the bank, Jeffrey LS Koo, than his son and heir apparent, Jeffrey JL Koo jr. The bank is now the premier internet pace-setter in Taiwan.

The special characteristic of Chinatrust is that technology and new thinking have been less spun off into a separate division but permeate the whole fabric of the bank. The bank leads in electronic offerings to its retail offerings, but is also retooling the bank as a transaction settlement bank and at the same time backing an ambitious business-to-business electronic market place, bex.com.

The bank is in expansion mode across Taiwan. Negotiations are being held with several banks and at least one transaction is expected to be executed by the end of the year. Chinatrust has long tried to spread its wings abroad, and the past year saw the pace of these efforts accelerate. Chinatrust debuted on the Philippine Stock Exchange (PSE) on 2 June, this year. The first bank to list on the PSE since 1995, Chinatrust raised approximately Ps430 million (about $10 million), to be used for expanding lending operations, establishing more branches and improving information technology.

Even more dramatic was the merger with Chinatrust USA, following the Jeffrey Koo Snr s dream to establish a bank within the top 100 and with a worldwide presence.

Further expansion plans are underway, with plans for the acquisition of a small or medium-sized European bank.

The bank s non-performing loan (NPL) ratio is not the best in Taiwan, but is very healthy compared with the estimated average of 8%. NPLs stood at 2.12% in January this year. The bank has, however, aggressively written off bad debt, and NPLs should stand at just 2% by the end of this year and 1.5% by the end of next year.

Best Domestic Investment Bank: China Securities

China Securities was established in September 1988, with paid-in capital of NT$1 billion ($32.4 million). Compared with other Taiwanese investment houses, it has shown itself capable of visualizing an investment banking world stretching beyond the confines of Taiwan. In terms of having the international experience vital to be able to compete with the foreign houses in the wake of its accession to the WTO, China Securities is in a league of its own. On its own turf, it is also the biggest bond house and comes second in securities.

It began brokerage, proprietary trading and underwriting on 10 December 1988. Now having paid-in capital of NT$6 billion, the company has over 1,000 employees and 23 local branches, as well as two overseas subsidiaries and several affiliated companies.

In order to further expand the product spectrum and provide more thorough investment advice, China Securities invested in CS Futures in December 1996 and in KG Securities Investment Advisory in 1997.
To facilitate its internationalization, China Securities set up offices in London and Hong Kong. Moreover, the company invested in KG Investment Holdings in Hong Kong in 1997 and KGI Securities One in Thailand in 1999.

Following the securities industry's trends of internationalization and liberalization, China Securities intends to focus on developing new products, to expand into a full line of services, to promote international business and to increase its number of branches. The company aims to provide customers with a comprehensive one-stop shopping service.

China Securities took the lead among local banks when it set up its International Business Department in 1991. Backed by the research department's solid support, the international department has become a major window for foreign institutional investors interested in entering Taiwan's stock market. At the end of 1999, a total of 645 foreign institutional investors had opened their accounts through China Securities  representing 12% growth from 1998.

China Securities also participates in international underwriting, assisting local companies to raise funds overseas. For the past several years, the company has acted as a local lead manager for issuance of overseas corporate bonds by Chia Hsin Cement Corp and Cheng Loong Co, as well as co-managing several other overseas corporate bond and global depositary receipt issues. Its biggest domestic bond deal, and one of the biggest out of Taiwan ever, was the underwriting of Taiwan Power s NT$10.7 billion bond.

Best Foreign Commercial Bank: Citibank

Testimonials are an important part of any banks submission for the awards, but Citibank s endorsement by Taiwan s former president Li Deng Hui was especially impressive.  Over the years, Citibank has made significant contributions to Taiwan s financial industry. Not only does it provide the full range of products and services, it has helped cultivate and develop Taiwan s financial talents. Li hit upon an important aspect of Citibank s stature on the island. Of all the foreign banks, it has had the biggest impact on the modernization of the banking industry. Ex-Citibankers turn up in almost all of the excellent crop of new banks that have emerged since deregulation.

On strict financial criteria it also merits the award. Despite slow economic conditions and the September earthquake last year, Citibank s pre-tax earnings amounted to $134 million, making it the largest and most profitable bank on the island.

Citibank has 10 branches island-wide  the greatest number of any foreign bank  and employs more than 2,800 employees. The bank serves over 170,000 retail banking customers.

Fubon and Citibank will join forces in the budding financial services market. Citibank is investing 15% in all of Fubon s financial services businesses, including life assurance, insurance and asset management. The strategic alliance with Fubon reinforces its position as an embedded financial institution in Taiwan. The investment is estimated to be worth around $750 million.

On the corporate side, Citibank provides top-tier local corporations, multinational companies and local banks with a full range of local and cross-border products and services including treasury, underwriting, corporate lending and deposit services. In August 1999, Citibank was the first to launch financial EDI (domestic electronics and receivables). This new service provides customers with cheaper pricing in domestic transfer and value added commercial information to facilitate accounts payable and accounts receivable reconciliation.

In the loan syndication market in 1999, Citibank leveraged its strong loan syndication franchise with Salomon Smith Barney. As a result of this, Citibank captured the leading position in the US dollar loan market and completed eight domestic currency deals, comprising a market share of 39%. Highlights include a $200 million loan for Chunghwa Picture Tubes, a $120 million structured facility for USIC, and a $100 million loan for Wealthplus.

Best Foreign Investment Bank: Goldman Sachs

Mighty Goldman Sachs, already towering over the world equity league rankings, has a similar stature in Taiwan. Goldman has been adviser on the largest and second largest M&A deals coming out of Taiwan: the $6.5 billion acquisition of WSMC by TSMC and the $2.5 billion acquisition of TSMC Acer by TSMC. Indeed, in the year to date, Goldman had a dominant 70% market share of financings by Taiwanese companies and raised $2.5 billion in six completed transactions this year.

It has big plans for Taiwan, with plans to set up a full branch office in the second half of 2000 staffed by 30 employees. Goldman s current commitment is reflected by the basing of a partner in the Taipei office.

A characteristic of Goldman Sachs has been its large number of repeat business. Its telecoms franchise is especially strong, with numerous transactions for companies such as TSMC, Acer, ASE and Gigamedia, Far Eastern Textiles and Evergreen.

Goldman s long standing partnership with Taiwan Semiconductor Manufacturing (TSMC), in many ways the island s most prestigious client, brought about some of the most spectacular deals coming out of Taiwan in the past 12 months. The latest and most dramatic cooperation was the American depositary receipt offering of over $1 billion in June this year, the largest non-privatization equity issuance in Asia ex-Japan. This came in the wake of raising $620 million in the early part of the year.

TSMC was also the catalyst for Goldman, demonstrating its M&A expertise in the largest and second largest transactions ever to come out of Taiwan: the $6.5 billion acquisition of WSMC by TSMC and the $2.5 billion acquisition of TSMC Acer by TSMC. Goldman was also involved in the $143 million sale of a 33% stake in Tingyi to Sanyo Food of Japan.