Analysis on the Performance of Cross-Border Banking Acquisition in Taiwan - Case Studies in Citi ＆ HSBC

• Main Authors: Yu-Ting Hsu徐鈺婷, 徐鈺婷
• Other Authors: Len-Kuo Hu 胡聯國
• Format: Others
• Language: zh-TW
• Published: 2016
• Online Access: http://ndltd.ncl.edu.tw/handle/7x786h

碩士 === 國立成功大學 === 高階管理碩士在職專班(EMBA) === 104 === SUMMARY With the liberalization and globalization of financial markets, financial institutions worldwide have already been aiming at the objectives of service diversification and global strategic deployments. In order to remain competitive in the growingly complicated and competing circumstance facing today’s financial market, and to boost the competitiveness of Taiwanese financial market, the Taiwanese government has launched two waves of financial reforms with the expectation of enhancing the institutionalization of financial agencies through merger and acquisitions so as to significantly improve the performances of Taiwanese financial agencies; and at the same time foreign banks can also invest Taiwan as a jump start to the greater Chinese market by acquiring financial institutions in Taiwan. While acquisitions are indeed one of the means to quickly obtain the advantages of business size in market, such advantages can only be gained if the acquisition is successfully iplemented, and whether acquisitions are successful is largely determined by the level of cooperation between the acquiring bank and the acquired bank on a variety of issues such as business philosophy, organizational reforms, utilizations of human resources crisis management methods and other issues that may cause friction between the two institutions. To sum up, successful merger of a bank requires nuanced considerations on multiple fronts. This study adopted two case studies, one of which was the acquisition of OCBC bank by CitiBank and the other was the acquisition of The Chinese Bank by HSBC Direct. This study examined and evaluated the acquisition procedures and the crisis management capability produced by mergers between Taiwanese banks and foreign banks based on several factors: the quality of acquired companies, the motivation behind acquisitions, cultural integrations, management tactics, responses to sudden catastrophes such as collapse of Lehman Brothers, Eurozone debt crisis and the Great Recession since 2008, and the introduction of new post-crisis financial policies. The researcher of this study briefly described her working experience in both banks before and after merger in the form of case study to analyze the management strategies used in both merger case and the ultimate performances produced by those strategies. Keyword: Acquisitions、CitiBank 、HSBC INTRODUCTION The first financial reform plan proposed by Taiwanese government occurred in year 2001, which encouraged domestic private banks to transform to financial holding institutions; the second reform program was proposed in the following year, which called for Taiwanese government to encourage merger activities to aggrandize the scales of existing financial holding institutions and ultimately transform Taiwan into the regional financial center in East Asia. At the time, Taiwan was commonly viewed as a platform to the growing business and financial opportunities in China and the country saw accelerated acquisitions of Taiwanese made by foreign banks. Taiwanese government then further perpetuated foreign acquisition of Taiwanese banks and there had been several major merger in Taiwanese financial market between year 2006 and 2008 done by Standard Chartered of the UK, CitiBank of the US, Shanghai HCBC Direct of Hong Kong, ABN AMRO Bank of Netherlands, and DBS Limited of Singapore. Several domestic banks also expanded their sizes, branch extensions and services through Resolution Trust Corporations (RTC). The researcher who conducted this study has worked in Citi bank and HCBC bank during the period between year 2004 and 2014 and has had first person experience in foreign acquisitions of banks in Taiwan as well as frequent engagement with operational goals, efficiencies, management strategies and business cultures of Western banks. After seeing and analyzing the changes occurred in corporation culture, system, personnel and clients before and after mergers, the incentive of conducting this research has gradually surfaced. MATERIALS AND METHODS This study first briefly described the evolution of financial banks in Taiwan since the first financial reform through reviewing related documents and studies from both Taiwanese and foreign accounts which understood the inevitable trend of bank merger taking places in Taiwan. Among those documents, this study chose the acquisition of OCBC bank by CitiBank and the acquisition of The Chinese Bank by HSBC Direct as two target cases for this research’s case study. The research method employed by this study was case research method, which collected comprehensive information regarding specific personnel or groups, identified problems in each case, then conducted deep and through analysis on those problems. The acquisition made by CitiBank was paid by cash while the acquisition done by HSBS Direct was compensated by RTC fund, hence they were chosen as targets for the case research methods due to the different payment methods for the merger deals. RESULTS AND DISCUSSION On December 1st, 2007, CitiBank officially announced its acquisition of OCBC Bank with payment of NTD 14.1 billion in cash (equivalent to USD 427 million). After the acquisition, Citigroup’s branches in Taiwan were expanded from 11 to 66 different locations. In the same year, HCBC Direct of Hong Kong merged The Chinese Bank. Prior to the acquisition, HCBC had prepared for two years for the planned acquisition but did not made a bid during the first round of bidding; the reimbursement to HCBC Direct compensated by Taiwanese Central Deposit Insurance Group also sparked controversies and criticisms from different parties, which forced HCBC Direct to promise a future investment of USD 300 to 400 million to ensure the fluent operation after the planned acquisition. After assistances from the Taiwanese government and other state-sponsored programs, HCBC Direct finally won the bid and acquired The Chinese Bank, however the acquisition also created the record of the second biggest loss of Taiwanese Central Deposits Insurance Group. The final bid totaled NTD 47.49 billion; and after the contract being signed between HCBC Direct and Central Deposits Insurance Group, because of the extraordinary penalty for failing the first bid, the insurance group was forced to adopt intermediation and allowed the penalty to be recovered by future insurance fee and corporation tax. HCBC Direct‘s branches in Taiwan grew to 47 after the merger and in 2009, it established its first headquarter in Taiwan with minimum capital of NTD 100 billion as stated in the contract. Since the completion of the two acquisition cases above, the two banks have undergone the crisis of Great Recession of 2008 and 2010 Eurozone debt crisis. The relaxation of fiscal policies has also been practiced by major economic bodies to today, and such behaviors definitely have had profound influence on the banks’ operations. Comparing Citigroup and HCBC Direct ‘s performances can lead us to the conclusion that CitiBank’s post-merger performance has been far superior to those of HCBC Direct since CitiBank started with a better financial standing while HCBC barely won the bid with state patronage. This research collected financial sheets for both banks from 2007 to 2014 and compared their performances before and after merger from the perspectives of operational performances, profitability and business strategy. CONCLUSION There are several discoveries made by this study that may be useful for future references for financial institutions. First, the findings of this study showed that bailing out banks that are on brink of collapse is not a wise choice because the RTC funds are supplied by taxpayers yet manipulation of such fund prevents public resource from being invested into selected private sectors and leads to deliberated act of embezzlement and bad debt, which further worsened social inequality. The unsatisfactory results of past two financial reforms should remind politicians to be cautious on the implementation of the 3rd financial reform passed by Legislative Yuan in 2015, there must be additional tax breaks offered to banks to reduce the number of financial institutions and facilitate the expansion of oversea markets. The Taiwanese Financial Supervisory Commission (FSC) also promised to lead Taiwanese financial institutions to reach new markets in Asia and has provided many incentives to encourage Taiwanese banks to expand into foreign markets. However, FSC must also promote the integration and combination between private and public banking sects in order to maximize the effects of bank acquisitions. Finally, Taiwan should continue to introduce foreign banks with good financial standing since Western banks are more likely to have more advanced technology, experience and professional knowledge in international banking with first tier investment platforms and globalized financial service network. Advantages held by foreign banks can effectively raise the efficiency and service standards of banks in Taiwan and lead to stronger governance, improved risk management and global competiveness.