Daniel Tsai sees the future but can't quite get a grip on it. The 48-year-old Tsai is chairman and co-chief executive officer of Fubon Financial Holding Co., Taiwan's third-largest bank. For now his bank is doing well: Last year it racked up profits of $452 million on revenues of $5.5 billion. But Taiwan has too many banks -- 47 for a population of just 23 million -- and opportunities for growth are limited.
So Tsai and his brother Richard, who is co-CEO, want to follow the thousands of local companies doing business across the Taiwan Strait. Taiwan executives have invested an estimated $100 billion in the mainland over the past 15 years, and the Tsais -- heirs to one of Taiwan's richest families -- would like to see some of that deposited in their bank. "Going to China is for survival, not just for growth," says Tsai, who studied law at Georgetown University. "If we don't go, we will be sitting ducks here."
The problem is that under Taiwan law it's illegal for banks to open branches on the mainland. The government of President Chen Shui-bian, an ardent Taiwan nationalist, is determined not to allow the financial system to move to the mainland the way the rest of Taiwan Inc. has.
Most of Taiwan's banks have resigned themselves to battling it out for market share on their crowded home island. But the Tsai brothers are determined to get around the restrictions on mainland investment. In March, 2004, they paid $416 million for a controlling 75% stake in a small Hong Kong institution called International Bank of Asia (IBA), which could give them access to the mainland.
The plan is to set up IBA branches in the Pearl River Delta. Bank research indicates that in the city of Dongguan alone more than 6,000 Taiwan-owned businesses and factories that need funding. Fubon also wants to provide wealth-management services to Taiwan executives based in China who prefer to leave their cash offshore. Needless to say, other big Taiwan banks, including Chinatrust Financial Holdings Co. and Cathay Financial Holding Co., are watching Fubon's plans with interest.
The Chen government has yet to give its blessing to the Tsai brothers' effort. Indeed, earlier this year it adopted a "go-slow" policy on further expansion by Taiwanese companies in China. Nevertheless, Taiwan's bank regulator, the Financial Supervisory Commission, is sympathetic. "The commission supports Taiwan banks wanting to go to China," says spokesman Lin Chung-cheng. "This is for the financial development of Taiwan."
Taiwan's bankers say it is crucial that the government loosen the restrictions now. By the end of 2006, they note, China's banking system will be opened to competition from giant foreign firms, which are now restricted to a few branches in a handful of cities. And mainland banks are gearing up to get their own share of Taiwan business. Beijing-based China Development Bank announced in September that it plans to provide $3.8 billion in loans to Taiwan companies over the next five years. "Time is running out," says Norman Yin, a banking and finance professor at National Chengchi University. "The banking sector [in Taiwan] has been in trouble for years. China would open a new era."
That new era can't arrive too soon for overbanked Taiwan. In recent years, infighting among banks has put the brakes on a government plan for consolidation intended to restore some vigor to the sector. The government says it will push ahead with the merger plan anyway, but for now banks are struggling. Merrill Lynch & Co. (MER ) expects Fubon's earnings to tumble by 13% this year as revenues are forecast to fall by 9%. Daniel Tsai has taken measures to shore things up: He hired a veteran of Goldman Sachs & Co. (GS ) to build Fubon's investment banking business and is expanding into wealth management and mutual funds.
That's a good first step. But to outrun his Taiwanese competitors, Tsai knows he needs to get into China. The question is, can he get there from here?
By Matt Kovac