Chinese banks are expected to seek investment opportunities in Taiwan, hoping to apply new government guidelines and tap the busy cross-strait commerce, J.P. Morgan's (JPM.N) Brian Gu told Reuters on Monday.
Opportunities exist in the other direction too, as China represents an excellent chance for Taiwan's financial industry to expand onshore, Gu, the Greater China M&A head at JPMorgan Chase (JPM.N), said at the China Investment Summit.
If you look at the recent Taiwanese regulations around mainland investment guidelines, financials are one of the encouraged sectors, Gu said. It's conceivable that Chinese banks can look at that market as a way to expand the Greater China concept and tap into cross-strait commerce.
Gu cautioned that China-Taiwan investing involves more political considerations than economic ones. China has claimed sovereignty over Taiwan since 1949, when Mao Zedong's forces won the Chinese civil war and Chiang Kai-shek's Nationalists fled to the island. Beijing has vowed to bring Taiwan under its rule, by force if necessary.
Beijing-Taiwan relations have recently thawed, leading some bankers to see potential deal opportunities.
There is definitely strategic rationale for that, it just needs to be handled very carefully, Gu said at the summit, held at the Reuters office in Hong Kong.
In addition to natural resource deals in Australia, China is also eyeing investments in Hong Kong and Southeast Asia.
Gu said that China M&A advisory is a business that has steadily grown in the last five years, unlike similar banking units in other parts of the world that ride market ups and downs.
If you look at cross-border deal volume, I don't think it correlates significantly with the A-share market, he said.
That is driven by two factors, he said: One is that China acquisitions typically involve cash deals and not stock swaps. The other is that the financing market in China, backed largely by state banks, is more detached from stock market movements and corporate confidence.
Though not unscathed by the financial crisis that brought Wall Street to its knees, J.P. Morgan has emerged from the mess ahead of most of its peers. A combination of factors has allowed the bank to distance itself from rivals at a time when hopes are high that the global economy is recovering.
In Asia, excluding Japan, J.P. Morgan ranked second in the 2008 M&A league table category for fees from completed deals. Thomson Reuters data estimates the bank pulled in $120.3 million in fees in the region last year, behind Morgan Stanley's $137.9 million.
In that same category for China only, J.P. Morgan was also second behind Morgan Stanley, with an estimated $30.9 million in fees.
Among the deals Gu has participated in are China Unicom's (0762.HK) $56 billion stock merger with China Netcom and Sinosteel's $1.3 billion unsolicited cash offer for Midwest -- China's first hostile takeover of an Australian listed company.
Taiwan's financial sector has long been thought to be ripe for dealmaking. The window may be opening.
As political and business ties across the strait get warmer, more Taiwanese people move to major cities in mainland China for jobs or investments.
There are an estimated half million Taiwanese people living in Shanghai, and demand for cross-strait financial services is growing fast.
Taiwan's financial institutions are also interested in expanding into the mainland China market. In early August, Fubon Financial Holding (2881.TW), parent of Taiwan's No. 2 insurer, said it would participate in a fund-raising plan by China's Xiamen Commercial Bank by the end of the year.
For Chinese banks to go on an acquisition spree, Gu says, it's always a question of whether the regulators and the companies can make a judgment call and say the worst is over, it's time for us to make bold moves.
The other question centers on integration.
For any M&A, they need the confidence that they aren't getting into anything that's messy, Gu said. They have to demonstrate strong integration and a capability to absorb those assets.