Tokyo Star Sale Delayed by Taiwan on Breaches at Buyer CTBC

Taiwan is delaying approval of CTBC Financial Holding Co.’s planned 52 billion-yen ($505 million) purchase of Japan’s Tokyo Star Bank Ltd. after finding breaches of internal controls at CTBC’s banking unit.

Taiwan’s Financial Supervisory Commission postponed considering the deal along with all investments by CTBC Bank Co. “until corrected measures are taken and recognized by us,” Jean Chiu, a spokeswoman for the regulator’s banking bureau, said by telephone yesterday.

CTBC Bank, an arm of Taiwan’s fourth-largest publicly traded financial firm by market value, was fined NT$10 million ($330,000) and restricted from setting up overseas units until the situation is rectified, the FSC said in a statement. Failed internal protocols allowed bank managers to hide control of a Shanghai-based company from board members, the regulator said.

The penalties may delay a planned $1.4 billion expansion by the Taipei-based lender and its parent. CTBC Financial in October announced proposed purchases of Taiwan Life Insurance Co. as well as Tokyo Star Bank as it seeks to diversify outside its crowded home market.

CTBC Financial said the bank will make improvements in accordance with the FSC’s conclusions, according to a filing to the Taiwan Stock Exchange yesterday. Taiwan Life said today in an exchange statement the penalties for CTBC won’t affect its finances and operations.

Take Months

It may take one to three months for the suspension to be lifted, because the lender needs to end its contract with the Shanghai company and change internal rules, according to the FSC’s Chiu.

“We can’t comment on this matter as it concerns a specific transaction,” said Tomoya Tsujimura, a spokesman at Japan’s Financial Services Agency. Hiroaki Naruse, a spokesman for Tokyo Star in the Japanese capital, said the bank isn’t in a position to comment.

Shares of CTBC fell 0.3 percent to NT$19.40 at 11:38 a.m. in Taipei. Tokyo Star isn’t publicly traded.

CTBC agreed to buy Tokyo Star from holders including Lone Star Funds, Shinsei Bank Ltd. and Credit Agricole SA last year. The Taipei-based bank said the transaction requires regulatory approval from Taiwan and Japan. A deal would mark the first takeover of a Japanese commercial bank by a foreign lender.

Before it's here, it's on the Bloomberg Terminal.