Taiwan's Fubon takes over IBA

I told you it was coming......

Taiwan's Fubon Financial will acquire 55 per cent of International Bank of Asia (IBA) from Bahrain-based Arab Banking Corp for $2.37 billion, marking the third local bank acquisition in just over a month.

Fubon, Taiwan's second-largest financial services company, will pay Arab Banking $3.68 per share - or 1.16 times book value.

Arab Banking originally revealed its intention to divest its stake in IBA in December last year, but talks were complicated by the two parties' differing price expectations.

Fubon will also make a general offer for IBA's remaining shares, including the 20 per cent stake held by mainland financial services company China Everbright.

The acquisition is subject to approval by Hong Kong and Taiwanese regulators and other undisclosed conditions. China Everbright executives were not available for comment yesterday.

Based on IBA's unaudited interim financial statements, the deal values it at $4.31 billion. IBA did not disclose when the deal would be completed.

"The acquisition of IBA is an attractive opportunity to expand into Hong Kong's financial services industry," Fubon co-chief executive Richard Tsai said. "Fubon intends to leverage IBA's existing franchise and grow the business."

Declining returns stemming from low loan demand have forced many Hong Kong bank owners to part with their shareholdings. The slump has driven down the price tags of local banks and attracted bargain hunters.

While most market watchers agreed that the 1.16 times book value Fubon was willing to pay for IBA constituted good value for the small bank's shareholders, it was uncertain whether it would be able to create revenue or cost synergies.

"This is a cross-border acquisition, so it's much harder to perceive much in the way of revenue or cost synergies," CLSA banking analyst Dominic Chan said.

IBA has only 24 branches in Hong Kong.

Sunil Garg, the head of Asian banks research at Fox-Pitt Kelton, said that while IBA's valuation was not "massively pricey", it had a chequered history of low returns.

IBA recently reported a 45 per cent drop in net profit for the first half, as it chased mortgage business at rock-bottom prices.

However, UBS head of Asian banking research John Wadle expects Fubon to bring marketing expertise and Taiwanese customers to help turn around the bank.

"IBA is a nice, low-risk conservative bank. It's just too small and doesn't have the scope to leverage itself," Mr Wadle said.

"The 1.16 times [Fubon] is paying is a fair price provided that it can enhance the business activities of the bank."

While some analysts said Fubon might be eyeing expansion on the mainland using IBA, Taiwan's Ministry of Finance said yesterday that such practices would not be allowed.

Founded in 1982 as Sun Hung Kai Bank, IBA is no stranger to takeovers. About 75 per cent of the bank's shares were bought by Arab Banking in 1985, which replaced much of its management team and subsequently renamed it.

In 1990, Arab Banking bought out the bank's remaining shares, only to take on China Everbright as a partner three years later and list it on the stock exchange.