The Government of Taiwan wants to reduce the number of state-run banks from 12 to six by the end of this year, and interestingly, senior officials said it would look to form a foreign bank partnership in its efforts to build an ABS franchise. No names have been mentioned thus far, and it would come as something of a shock if a foreign investment bank would be willing to get involved in such a venture.
Securitization may only be three years old in Taiwan, but it is already apparent that foreign firms are being squeezed out. "I would be very surprised if any foreign house would give their technical expertise for free to a Taiwanese bank," commented one Asian ABS veteran. "The market is ultra competitive and fees are dropping fast, so much so that I don't know if any foreign investment bank will be that active next year."
Following the experience of Societe Generale, which became the first overseas firm to gain a foothold in Taiwan, for little financial reward according to rival bankers. One year before any securitization legislation was passed, Soc Gen established a cooperation agreement with Industrial Bank of Taiwan and the two closed the country's first ABS in January 2003 - a NT$3.65 billion ($104.8 million) CLO.
Having invested so much time putting together the deal - Soc Gen was pinning its hopes on being rewarded with a bundle of follow-up mandates and healthy fee income.
However, Soc Gen and Industrial Bank of Taiwan's alliance lasted just one more deal, a NT$2.13 billion real estate asset trust ABS in June 2004. Having secured its securitization education for next to nothing, sources report, Industrial Bank of Taiwan informed Soc Gen that its services were no longer needed.
Shortly afterwards, the bank effectively shut down its Asian securitization operation when its top Asian ABS banker, Andy Lai, left the firm. Soc Gen then decided no replacement would be brought in. The bank said Asian clients would be served from its U.S., Australian and European teams. However, the lack of designated ABS bankers based in the region has surely contributed to it not securing any mandates since the last Industrial Bank of Taiwan deal.
Most heads of Asian ABS realize there is a limited window of opportunity arranging local currency deals in ex-Japan Asian markets. Once domestic banks get experience in arranging deals, international firms by and large have found it hard to compete on fees and are mostly brought in for cross-border transactions.
Elsewhere, the state-owned Taiwan Business Bank told local media last week that it is looking to provide customers with securitization services and other innovative products. The bank's new management feels the move is necessary if it is to separate itself from the competition.
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