Moody's: Nan Shan Acquisition Would be Negative for Taiwan's Financial Companies

Taipei, December 10, 2010 (CENS)—Word is that the American International Group Inc. invited four Taiwanese parties to conduct due diligence on AIG's Nan Shan Life Insurance Co., including Cathay Financial Holding Co., Chinatrust Financial Holding Co., Fubon Financial Holding Co. and the chairman of Ruentex Group. For the three financial holding companies, successful acquisition of Nan Shan would be credit negative, with the degree depending on several factors, including the deal's ultimate financing structure, integration plans, and the pro forma business and financial profiles of the combined entity, said Moody's Investors Service.

The Nan Shan invitation represents a renewed attempt at selling the insurance business after AIG terminated its previous planned transaction with the Primus Financial/China Strategic consortium because it failed to gain regulatory approval.

The deal would be particularly negative for Cathay because of the negative financial impact the deal would have on the group, said Moody's. The profitability of Cathay Life, its largest subsidiary, has been weak. Nan Shan's profitability, meanwhile, has been volatile over the past few years.

Fubon, on the other hand, has been more profitable in both its banking and insurance operations. It also has solid capitalization at each of its subsidiary, hence better able to absorb the financial burden.

Both Cathay and Fubon already have substantial life insurance operations with large agency forces. Integrating with Nan Shan would present challenges because of the significant turnover and the large number of agents involved. Synergies may not be easily realized given the overlap of their distribution channels.

Chinatrust doesn't have a substantial presence in insurance. Adding Nan Shan would complement its financial services platform, thereby diversifying its earnings stream and enhancing its cross-selling capabilities with its banking subsidiary, Chinatrust Commercial Bank.