Euromoney emerging market series: Fubon

Euromoney, January 2012 (part of a multi-writer cover story on emerging market banks)

No bank in Taiwan has made a more strident play to take advantage of thawing cross-Straits relations with China than Fubon. The truth is that progress for Taiwanese financial services groups in China has been glacially slow, and it will be years before it has any meaningful impact on the bottom line of any Taiwanese bank. But when the money does start to flow, banks across the country will owe Fubon a vote of thanks for getting the pioneering deal through.

When Fubon Financial Holdings bought a 19.9% stake in China’s Xiamen Bank in 2008, it represented the culmination of years of effort and negotiation. The deal was permitted because Fubon bought the stake through its Hong Kong subsidiary, and hence was not a direct purchase by a Taiwan-based bank of a Chinese one; consequently it involved close discussion between not just the People’s Bank of China and Taiwan’s Financial Supervisory Commission, but the Hong Kong Monetary Authority as well.

A minority stake in a smallish Chinese bank is not going to make a big change to anybody’s P&L, and certainly not Fubon’s, but the more important point was that it got all three key regulators around the same table and caused them to hammer out some important issues. Doing so made it easier for what followed: relaxed FSC and PBOC regulations allowing Taiwanese banks to set up business operations in the mainland, a potentially transformative step for the entire Taiwan financial services industry. Fubon launched its first rep office on the mainland, in Suzhou, on December 5.

Like its peers, Fubon must have a rep office in operation for a year before being allowed to upgrade to a branch, and then a further two years before it becomes a subsidiary (and even then only if it was profitable for a year as a branch); it’s only then that they will be able to offer deposits and financing in RMB, which is a crucial part of the product set whether representing Taiwanese businesses or Chinese ones. Development in investment banking and brokerage will evolve from there, a modest securities presence within Xiamen Bank notwithstanding. But the point is, a foothold has been achieved.

Back home, Fubon is one of the largest financial groups in the country, a leading consumer brand with particular strength in Greater Taipei. The investment banking arm, Fubon Securities, includes an impressive presence in brokerage and local underwriting, although the group’s mainstays are more generally seen as corporate lending, wealth management and insurance. As of June 2011 it ranked third by trading value among the island state’s securities firms, and was third for spot trading brokerage, fifth in margin loans, and second in underwriting local IPOs.

But it’s really in Greater China that it will make its name, initially in broader corporate work but in time perhaps also in securities and brokerage. Already the only Taiwanese financial holding company to own a Hong Kong bank, it has set its mainland ambitions firmly on the West Strait Economic Zone centred around Xiamen in Fujian Province – geographically, the closest to Taiwan. Fubon has been a first mover in China, but it’s also been focused and smart.