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HSBC to get $1.5 bln from Taiwan to take over bank

By Faith Hung and Tony Munroe
/ Source: Reuters

By Faith Hung and Tony Munroe

TAIPEI/HONG KONG (Reuters) - HSBC will receive T$47.5 billion ($1.5 billion) in Taiwan government funds and make a major cash infusion to rescue the failed Chinese Bank, in the latest Taiwan acquisition by a major foreign bank.

HSBC said on Friday it would inject $300-$400 million of additional capital into the small lender to ensure its enlarged operations maintain appropriate financial ratios.

The Taiwan government said it would give the T$47.5 billion to HSBC to take over Chinese Bank as part of an effort to push consolidation of the over-crowded banking industry, which has largely emerged from an islandwide consumer credit crisis that peaked in 2006.

The British banking giant has come under pressure to make an acquisition in Taiwan, the fourth-biggest market in Asia, after Citigroup , Standard Chartered and ABN AMRO all acquired Taiwan lenders over the last two years.

HSBC's domestic rivals, top financial holding firm Cathay and biggest credit card issuer Chinatrust Financial, also received Taiwan government funds to take over other struggling banks earlier this year.

"It (the acquisition) was a pressing matter for HSBC, otherwise it would be left far behind rivals in terms of branch network next year, a key to expand the profitable wealth management business," said an analyst of a U.S.-based securities house, who asked not to be identified.

HSBC said in September it planned to make wealth management one of its top priorities in Taiwan, aiming for a 6-7 percent market share in three years.

Shares of HSBC beat the Hang Seng Index , with HSBC rising 0.3 percent while the broader market fell 0.7 percent. HSBC shares were up 0.5 percent in early London trade.


Foreign banks and private equity investors, including the Carlyle Group and Newbridge Capital , have shown increasing interest in local banks, as Taiwan is Asia's No.3 wealth management market and Taiwan companies have invested billions of dollars in China.

"Taiwan is a key component of HSBC's Greater China positioning," HSBC chairman Vincent Cheng said in a statement.

"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," he said.

Taiwan has attracted foreign firms, like the world's top wealth manager UBS and biggest U.S. insurer AIG , as the island's affluent population only lags Japan and China in Asia.

AIG told Reuters in May that it was aiming for $20 billion in client assets in five years at its Taiwan unit that was open earlier this year.

HSBC negotiated with the Taiwan government for the bank acquisition after a formal auction in the previous day, according to a statement from the Central Deposit Insurance Corp.

The acquisition will give HSBC 47 branches in Taiwan, compared with eight currently.

The Taiwan bank failed and was taken over by the government after its parent, the Rebar Group, became embroiled in scandal that included bankruptcy of two of its units about a year ago.

The bank had gross assets of approximately $3.1 billion at September 30, HSBC said.

(Additional reporting by Rachel Lee)

(Editing by Doug Young & Lincoln Feast)