HSBC acquires Taiwan bank

The Hongkong and Shanghai Banking Corp. Ltd. (HSBC) has been named the winning bidder in a government auction to acquire The Chinese Bank Co. Ltd. (The Chinese Bank) in Taiwan.

The acquisition will increase HSBC’s island-wide branch network from eight to 47, giving it a presence in all the major cities in Asia’s fourth biggest banking market.

The Taiwan Government’s Central Deposit Insurance Corp. (CDIC) took control of The Chinese Bank in January 2007.

As of end September, gross assets were NT$100.16 billion (approximately $3.097 billion).

HSBC will assume the bank’s assets, liabilities and operations with a payment by the CDIC to deliver an agreed net asset position. In addition, HSBC will provide certain additional capital to ensure that its enlarged operations maintain appropriate financial ratios. The amount of such additional capital will be determined by reference to the balance sheet as at completion.

Based on information currently available, it is estimated that this will be between the Taiwanese dollar equivalent of $300 to $400 million.

The Chinese Bank has 36 branches and over one million customers throughout Taiwan. It provides a full range of services to retail customers as well as small-to-medium size enterprises and large corporates.

Under the terms of the transaction, HSBC will also be able to convert three business offices of The Chinese Bank into new branches.

HSBC chairman Vincent Cheng stressed that Taiwan is a key component of HSBC’s Greater China positioning. Over 750,000 Taiwanese companies currently operate in China and there was $7.6 billion of foreign direct investment from Taiwan in 2006, up over 180 percent year-on-year.

“Together with our market leading franchise in Hong Kong and position as the largest foreign bank in China, HSBC is strongly positioned to benefit from the growing level of trade and investment in Greater China and across the region,”Cheng added in a press statement.

One of Asia-Pacific’s wealthiest economies, Taiwan is growing significantly faster than the major western industrialized economies, with gross domestic product in recent years expanding at an annual rate of almost five percent.

Domestic demand is expected to strengthen over time as household income expands and long-term savings and investments grow as individuals increasingly choose to plan for their futures.

In accordance with the terms of the transaction, HSBC is required to establish a local subsidiary within three years of completion or one year after HSBC’s total assets in Taiwan exceed NT$450 billion (approximately $13.9 billion), whichever is earlier. The new company will have a minimum capitalization of NT$10 billion (approximately $309 million).