Fubon banks on cross-strait thaw

The purchase of a Chinese bank by Taiwan's Fubon reflects the reality that cross-strait M&A has been slow despite a thaw in relations, with few big new deals likely over the next 2-3 years.

PUBLISHED : Friday, 28 December, 2012, 1:21pm
UPDATED : Friday, 28 December, 2012, 1:21pm

The ongoing thaw in relations between China and Taiwan has helped increase trust between the former pair of Cold War adversaries, but hopes for a boom in cross-strait M&A have yet to materialise as lingering suspicions remain. That reality is on display once again this week, with the announcement by Fubon (Taipei: 2881), one of Taiwan's leading banks, that it has reached an agreement to buy 80 per cent of a mid-sized Chinese bank called First Sino Bank for about US$900 million. 

This particular deal comes more than four years after Fubon became Taiwan's first bank to enter China with the purchase by its Hong Kong subsidiary of about 20 per cent of Xiamen City Commercial Bank for an undisclosed sum. And yet even after its huge effort to close both of these purchases, Fubon which is easily the most aggressive of Taiwan's banks toward expanding in China, will still only have a tiny branch network in the market.

Most of Taiwan's other major banks have made little or no progress at all in China, even though most would love to be more active in the market to serve the large Taiwanese business communities that live and work in the Shanghai and Pearl River Delta areas. Before I continue with the broader discussion of cross-strait M&A and why it has failed to gain momentum, let's step back and take a closer look at this latest deal by Fubon.

Under the deal, Fubon will pay 5.65 billion yuan (US$905 million) for the 80 per cent stake in First Sino, which is being sold by Taiwan's Pou Chen Group and Wing Hang Bank. Shanghai-based Pudong Development Bank (Shanghai: 600000) will retain the remaining 20 per cent of First Sino. The deal took more than a year to negotiate, and First Sino's foreign ownership undoubtedly made the process a bit easier.

The fact that the deal took so long to sign, coupled with the fact that few if any other Taiwanese banks have made similar purchases, underscores that we're unlikely to see much big cross-strait M&A anytime soon despite the thaw in relations between China and Taiwan since 2008 under the administration of Ma Ying-jeou.

As a longtime tech writer and former Reuters bureau chief in Taiwan from 2006-2009, I remember the excitement that many felt when Ma was first elected, with many predicting an unprecedented wave of new cross-strait acquisitions in the years ahead. That euphoria reached an early crescendo in 2009, when leading Chinese mobile carrier China Mobile (0941.HK; NYSE: CHL) announced it would pay around US$500 million for 12 per cent of Far EasTone (Taipei: 4904), Taiwan's third largest mobile carrier. Taiwan later rejected the purchase, saying the telecoms area was too sensitive, even though both companies have continued to lobby for a change in policy and also have continued to work together on a number of projects.

While a few major cross-strait investment deals have been announced in areas like infrastructure  construction, real major M&A has been slow to materialise. As with anything, this kind of change really takes time and perhaps we will someday see some major deals happening across the Taiwan Strait. But as this Fubon deal illustrates, such deals will probably take lots of time and effort for minimal rewards, as each side becomes familiar with the other. That means we're unlikely to see few if any cross-strait M&A deals worth more than US$1 billion for at least the next 2-3 years.

Bottom line: The purchase of a Chinese bank by Taiwan's Fubon reflects the reality that cross-strait M&A has been slow despite a thaw in relations, with few big new deals likely over the next 2-3 years.