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Financial services M&As to hot up this year

By Xu Shenglan (China Daily)
Updated: 2009-03-24 07:56

Financial services mergers and acquisitions (M&As) in Asia will be more active this year as most of the Chinese financial institutions are exploring opportunities to expand their businesses, according to a PricewaterhouseCoopers (PwC) report.

The report is based on a survey of 215 senior financial services executives, of which 20 percent come from the Chinese mainland and Hong Kong.

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The survey found that 42 percent of respondents intend to make an acquisition this year, compared with 38 percent in 2008. Respondents from Taiwan and the Chinese mainland are the most likely to pursue M&A deals this year.

"The keenness in China could be due to the stronger balance sheets and lower levels of outbound M&A activity in the past few years. This has left companies in a stronger position to weather the effects of the global financial crisis," said Nelson Lou, transaction partner, PwC.

Over 63 percent of the Chinese respondents are actively seeking opportunities to expand their business in the current environment. In comparison, the figure is only 43 percent among HK respondents.

The need to expand business lines and broaden sources of fee income will be the potential driver for M&As in China. Over 42 percent of the China-based respondents said they would invest further in their own businesses, while 42 percent are planning new business lines and 69 percent an entry into newer markets.

"While activity from China has been low till now, we are seeing some signs of renewed confidence and I would not be surprised to see a resumption in outbound deals by Chinese institutions within a matter of a few months", said Matthew Phillips, transaction partner, PwC.

Financial service M&As in the Chinese mainland in 2008 was driven by domestic banking sector restructurings. The largest transaction was Central Huijin Investment Co's injection of $19 billion to the Agricultural Bank of China.

Nearly half of the respondents identified asset valuation as the main barrier for M&A deals in Asia. Over 42 percent of the respondents cited lack of clarity on the financial position of many institutions as the most significant obstacle to fair valuation, while 40 percent cited continued market volatility.

Transaction value of financial service takeovers in Asia-Pacific, including banks, insurers, securities firms and mutual funds, fell to $99 million in 2008 from $125.96 billion in 2007.

The survey was done by the Economist Intelligence Unit in January and February 2009, and is the fourth PwC report on financial services M&As.