EDITORIAL: Taishin, Shin Kong merger positive

The long-awaited merger of Taishin Financial Holding Co and Shin Kong Financial Holding Co took effect on Thursday last week, creating TS Financial Holding Co. Its combined assets of NT$8.58 trillion (US$290.63 billion) as of March 31 make it the fourth-largest financial holding company in Taiwan, following Cathay Financial Holding Co with NT$13.88 trillion, Fubon Financial Holding Co with NT$12.12 trillion and CTBC Financial Holding Co with NT$8.98 trillion, Financial Supervisory Commission (FSC) data showed.

Before the merger, Taishin Financial was primarily a bank-centric financial holding company, with a strong consumer banking franchise and a leading market position in Taiwan’s credit card and wealth management sector. Shin Kong Financial was known as an insurance-focused financial conglomerate, possessing a large number of policyholders and life insurance assets. Full consolidation of their major subsidiaries — including banking, life insurance, securities, investment trust and asset management operations — is expected to be completed within one to two years, the companies said.

The merger is the first among financial holding companies in Taiwan since Fubon Financial’s acquisition of Jih Sun Financial Holdings in late 2022. It is also the largest friendly merger in Taiwan’s financial sector, resulting in the creation of a new entity. Market watchers generally expect the merger’s expanded operating scale and highly complementary business mix to enhance TS Financial’s market competitiveness and brand recognition.

Apart from being an important starting point for Taiwan’s financial sector to move toward economies of scale and structural transformation, the latest merger also signals a new phase in Taiwan’s financial consolidation. In this phase, an overcrowded domestic market could be thinned through market mechanisms initiated by privately held companies, rather than state-owned counterparts, which typically face significant challenges, including potential political hurdles and resistance from labor groups.

Since the 2000s, financial regulators have generally supported mergers and acquisitions among domestic financial institutions to enhance competitiveness and efficiency. Nonetheless, the attitudes of the successive FSC heads toward the overcrowded sector have varied. Their difference in preferences for friendly or hostile mergers has influenced the commission’s policy and weighed on potential deals over the years.

Nevertheless, the commission on July 3 announced amended rules to effectively block hostile takeovers, citing a need to ensure market stability.

The new rules — including a requirement for buyers in a friendly takeover to purchase a 25 percent stake in the target company to initiate a tender offer, up from the 10 percent requirement set by the commission in 2018 — along with several other restrictive terms, have almost closed the door to hostile mergers and acquisitions in the domestic financial sector.

Mergers are important in the financial sector, and regulators might approve any public tender in advance. While the success of a deal ultimately depends on the target company’s shareholders, the stance of the FSC matters more. In this regard, the commission’s merger policy needs to be consistent and balanced, as allowing consolidation in the sector is just the first step toward encouraging firms to advance at an ambitious pace.

Following last week’s merger, Taiwan still has 14 financial holding companies in a market that remains highly fragmented and intensely competitive compared with other advanced markets. Whether the merger generates a chain effect — such as the government introducing incentives to foster an environment conducive to mergers and acquisitions, and encouraging financial holding companies to further concentrate resources and enhance competitiveness — would be a milestone for success.

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