Trust is the bedrock of finance, and a precondition for the smooth operation of trade. Financial institutions provide this trust. By submitting themselves to the government’s strict oversight they receive the trust of the market. This trust exists not only between individuals and individual financial institutions, it also exists between the market and its participants.
Competent authorities also play an important role. They must also ensure fairness, requiring all financial operators to respect and follow the same rules. This enables the healthy development of the industry and protects the rights and interests of society overall.
In the case of hostile takeovers, the acquirer must meet fundamental criteria, including capital adequacy, sound business operations, an international presence and corporate social responsibility.
Taishin Financial Holding Co and CTBC Financial Holding Co are vying to merge with or acquire Shin Kong Financial Holding Co.
In 2012, Taishin Financial had a double leverage ratio of 120 percent — higher than its peers. The Financial Supervisory Commission considered 110 percent to be the limit for a “sound financial holding company,” and so required Taishin to boost its capital strength. Taishin’s application to acquire a local unit of New York Life Insurance Co was rejected.
When Fubon Financial merged with Jih Sun Financial, it increased its capital by NT50 billion (US$1.56 billion) to maintain a healthy double leverage ratio. Clearly, the authorities view the double leverage ratio as a litmus test for determining whether a company has adequate capital.
The double leverage ratio reflects the risks posed by a financial holding company’s debt operations. When the commission reviews a merger application, it considers whether the merger would impact the public’s rights and interests. Suppose a financial holding company that is “too big to fail” has a double leverage ratio precipitously close to the upper limit: This would be a ticking time bomb.
According to a commission report in June, CTBC Financial had a double leverage ratio of 121.47 percent. CTBC has offered to buy 51 percent of Shin Kong Financial for NT$131.4 billion, including NT$95.4 billion in shares and NT$36 billion in cash, which would raise its double leverage ratio to more than 124 percent. Using a stricter definition that does not include special shares, the ratio could exceed the upper limit of 125 percent. CTBC Financial is a systemically important financial institution considered “too big to fail.”
The competent authorities’ consistency and policy conformity are of utmost importance to create a future “Asian asset management center” in Taiwan. Such a center would need to be founded on substantial trust and fidelity. It would also have to be supported by a fair and equitable supervisory system.
To entice foreign investment to Taiwan, supervisory bodies would need to guarantee market transparency and fairness. If double leverage ratios were used in the past as the basis for standard qualification for mergers and acquisitions, changing the rules would affect the international community’s perception of Taiwan.
Should auditing systems and bodies fail to retain strict adherence to codes and standards of integrity, this could damage the public’s trust in the government and chip away at support for the ruling party. Most important is that such a scenario could put a greater distance between Taiwan and the goal of transforming the nation into Asia’s asset management center.
Chiang Chung-yuan is an associate professor in the Department of Law at Shih Chien University.
Translated by Tim Smith
In an article published in Newsweek on Monday last week, President William Lai (賴清德) challenged China to retake territories it lost to Russia in the 19th century rather than invade Taiwan. “If it is really for the sake of territorial integrity, why doesn’t China take back Russia?” Lai asked, referring to territories lost in 1858 and 1860. The territories once made up the two flanks of northern Manchuria. Once ceded to Russia, they became part of the Russian far east. Claims since then have been made that China and Russia settled the disputes in the 1990s through the 2000s and that “China
China has successfully held its Forum on China-Africa Cooperation, with 53 of 55 countries from the African Union (AU) participating. The two countries that did not participate were Eswatini and the Sahrawi Arab Democratic Republic, which have no diplomatic relations with China. Twenty-four leaders were reported to have participated. Despite African countries complaining about summit fatigue, with recent summits held with Russia, Italy, South Korea, the US and Indonesia, as well as Japan next month, they still turned up in large numbers in Beijing. China’s ability to attract most of the African leaders to a summit demonstrates that it is still being
Trips to the Kenting Peninsula in Pingtung County have dredged up a lot of public debate and furor, with many complaints about how expensive and unreasonable lodging is. Some people even call it a tourist “butchering ground.” Many local business owners stake claims to beach areas by setting up parasols and driving away people who do not rent them. The managing authority for the area — Kenting National Park — has long ignored the issue. Ultimately, this has affected the willingness of domestic travelers to go there, causing tourist numbers to plummet. In 2008, Taiwan opened the door to Chinese tourists and in
Taiwan People’s Party (TPP) Chairman Ko Wen-je (柯文哲) on Thursday was handcuffed and escorted by police to the Taipei Detention Center, after the Taipei District Court ordered that he be detained and held incommunicado for suspected corruption during his tenure as Taipei mayor. The ruling reversed an earlier decision by the same court on Monday last week that ordered Ko’s release without bail. That decision was appealed by prosecutors on Wednesday, leading the High Court to conclude that Ko had been “actively involved” in the alleged corruption and it ordered the district court to hold a second detention hearing. Video clips