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December 3, 2009

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ICBC keen to buy stake in Cathay Financial for US$3.4b

THE Industrial and Commercial Bank of China is in talks to buy a stake in Taiwan's Cathay Financial, sources said yesterday, in a potential US$3.4 billion deal that would be the first direct investment by a Chinese mainland bank into a Taiwan financial group.

One source with direct knowledge of the matter said ICBC, the world's largest bank with a market capitalization of US$265 billion, was interested in buying a roughly 20 percent stake in Cathay Financial, Taiwan's top listed financial holding group, with a market value of US$17.3 billion.

"The two firms have met for five to six times in the past two months. The talks are getting very serious," said the source.

Another source confirmed the talks and the potential size of the deal but said discussions were in their early stages. ICBC and Cathay Financial declined to comment.

Goldman Sachs, Allianz Group and American Express all hold stakes in ICBC.

The sources didn't want to be identified because they were not authorized to speak publicly about the deal.

"This will definitely be positive for Cathay Financial because it gives them a huge advantage if they want to expand on China's mainland," said Michael Lan, an analyst at Fubon Securities.

He added that for now, it will be tough for mainland banks to be anything but investors in Taiwan as the Taiwanese banking market is oversaturated.

But mainland lenders may still seek to open branches in Taiwan, a desire that China Construction Bank spoke of yesterday.

ICBC and Cathay Financial hope to sign a deal soon after the mainland and Taiwan sign a free trade pact, which Taiwan aims to sign early next year, one of the sources said.

"An acquisition makes lots of sense for ICBC and Cathay Financial," said an analyst at a United States brokerage in Taiwan, who was not authorized to speak publicly about the matter.

"ICBC could own part of Taiwan's biggest financial holding firm. And Cathay can leverage ICBC's distribution network on the mainland for its insurance products."

Cathay Financial is the parent of Taiwan's largest insurer.

The talks between ICBC and Cathay are the latest in a flurry of activity among financial groups in China.

Hong Kong-based Primus Financial Holdings, picked by AIG as the buyer for its Taiwan Nan Shan Life unit, said yesterday it intends to resubmit its application to Taiwan authorities.


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