HSBC to Take Over Chinese Bank, Failed Taiwan Lender

HSBC to Take Over Chinese Bank, Failed Taiwan Lender (Update1)

By James Peng

Dec. 14 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank by market value, agreed to take over Chinese Bank, a unit of the bankrupt Rebar Group, after the Taiwanese lender was put under government oversight in January following a run on its deposits.

Central Deposit Insurance Corp., the government's bad-debt agency, agreed to pay HSBC NT$47.49 billion ($1.5 billion) to take control of Chinese Bank, it said in a statement today. HSBC will provide between $300 million and $400 million of capital to shore up the lender's finances, the bank said in a separate release.

``Taiwan is a key component of HSBC's Greater China positioning,'' said Vincent Cheng, HSBC's Asia-Pacific chairman, in the statement. ``HSBC is strongly positioned to benefit from the growing level of trade and investment in Greater China and across the region.''

Taiwan is trying to clean up its financial industry by weeding out its weakest banks, including China United Trust & Investment Corp., which the government auctioned in October. The island's consumer banks suffered losses in 2005 and 2006 from surging defaults on credit-card loans.

HSBC negotiated the deal directly with Central Deposit Insurance after three rounds of auctions for Chinese Bank failed yesterday. In Taiwan's bank auctions, the winning bidder receives money from the government to take over sound assets, including branches, and at least half of the employees.

Industry Turmoil

Central Deposit Insurance said in July an auction of Chinese Bank failed to attract any investors amid concerns about the ``professionalism'' of the bank's 2,400 workers, at least half of whom they would be required to employ. The government assumed control of Taipei-based Chinese Bank in January after a run on its deposits.

Chinese Bank's customers withdrew NT$30 billion in five days after two other units of the Rebar Group that the company made loans to declared insolvency on Jan. 4. Chinese Bank had NT$22.9 billion more debt than assets on May 31 and a bad-loan ratio of 18.3 percent, according to Financial Supervisory Commission data.

Taiwan on Oct. 2 agreed to pay Cathay United Bank, the banking unit of Cathay Financial Holding Co., NT$12.9 billion to take control of China United Trust, after the company was put under government oversight in March because its liabilities exceeded assets.

On June 8, Central Deposit Insurance agreed to pay NT$6.9 billion to ABN Amro Holding NV for assuming control of Taitung Business Bank. Chinatrust Financial Holding Co. on May 31 accepted NT$4.49 billion for taking over the Enterprise Bank of Hualien.

The turmoil in the island's banking industry has given foreign companies an opportunity to widen their Taiwan networks through acquisitions. Taitung, a regional bank on the east coast of Taiwan, has 31 outlets on the island.

New York-based Citigroup Inc., the most profitable overseas bank in Taiwan, agreed in April to buy the Bank of Overseas Chinese for NT$14.1 billion. London-based Standard Chartered Plc September 2006 announced a NT$40.5 billion acquisition of Hsinchu International Bank, the industry's first overseas takeover.

BLOOMBERG