Rebuilding Chinatrust

By Rodney Diola

With China’s rise as an economic superpower, a decade or so down the road it won’t be hard to contemplate the following scenario: a global Chinese bank – or a set of global Chinese banks – straddling the world, offering a menu of financial services similar to those now offered by global Western banks such as Citi or HSBC and servicing non-Chinese retail, wholesale or institutional clients.

The three largest banks in the world, in terms of market capitalization, are Chinese. They may not yet enjoy the global brand recall or the suggestive animalism that Western banks exude across the global financial landscape, but they certainly have the financial clout to do so if they wish.

Unlike the sad existential cul-de-sac in which many Western banks find themselves caught, the Chinese banks are adjusting to a world where they have suddenly become the leviathan among leviathans. As they find their groove in global expansion, they are warming up in their niche and expanding aggressively across new markets, including the Middle East and Africa. Admittedly, the somewhat surreal future scenario of a Chinese bank branch jost­ling with Citi or HSBC for retail and wholesale business in a far-flung town in India or a favela in Brazil carries with it lots of ifs and buts.

One of the ifs is if they succeed in developing the ability to hire the best in the markets where they find themselves. This might already be starting to happen, though not in mainland China. Chinatrust Commercial Bank (CTCB) is the largest private sector bank of Taiwan. It may not have the size or the clout of ICBC or Bank of China, and Taiwan could be considered a mere pinprick in the vastness of the Chinese realm, but Chinatrust is behaving as if it is ready to join the major league.

In the last 12 months, no bank has pulled out more stops than Chinatrust in remaking and repositioning itself as a major player outside of the island. A year ago Jeffrey Koo, its major shareholder, hired its first Western CEO and president. A lot is now hanging on the shoulders of banker Michael DeNoma to transform the bank from an established player in Taiwan to an institution with a more regional or even global reach. DeNoma, CEO and president of Chinatrust Commercial Bank, believes that the future belongs to Chinese banks. He believes that in ten years’ time, several of them will emerge as truly global players competing with the like of Citi and HSBC.

Absolutely bullish on Taiwan, DeNoma sees the island, virtually frozen out of the world’s psyche for the past 30 to 40 years, about to begin to captivate the attention of the world as it becomes one of the most exciting stories in the region. Taiwan’s potential, he argues, has grown more compelling in view of the blossoming trade and political rapprochement with China. Over the next decade, he sees Chinatrust becoming one of the first truly international Chinese banks in history.

Taiwanese tycoon and Chinatrust chairman Jeffrey Koo has long had a dream to transform the Taiwanese leader into a global banking institution. Koo who took over the business from his uncle and Chinatrust Commercial Bank founder Koo Chen-fu was forced to surrender day-to-day management last year after a financial scandal involving his family’s stake in Chinatrust that threatened to irreparably damage the bank. Bringing in a CEO from the outside with the experience of building a global brand and franchise, he believed, was a logical and necessary next step in the bank’s evolution.

DeNoma says Taiwan’s diplomatic and political isolation from the global community for several decades may prove to be one of its greatest saving graces. “Few if any multinationals went to Taiwan in the last 30 years because doing so might have affected their prospects in China. Most of them were either in or wanted to be in China, and they didn’t want to risk that opportunity by locating in Taiwan.”

Such decisions proved a boon, however, to indigenous entrepreneurial Taiwan companies, allowing them to grow unhampered into global players “This is one reason why Taiwan has many world-beating high-tech champions.” He points that in 2008, Taiwan had more patents per million population than any country in the world and it has consistently been the fastest in patent growth per capita over the last decade. Few realize that Taiwan companies currently account for 80% of global smart phone production worldwide. “I would not bet against Taiwan,” says the ex-Standard Charted Bank executive who has become the first foreigner to ever run a Taiwanese bank.

DeNoma recalls that when Michael Porter, the highly respected strategist, visited Taiwan earlier this year he was moved to describe it as the most innovative place in the world.

The challenge for the Taiwanese banking industry is that Taiwan, for the most part, missed the Asian financial crisis, notes DeNoma. “The positive in the Asian financial crisis of 1997-1998 was that it forced consolidation in most of the region’s banking markets. So while virtually everyone else consolidated, Taiwan did not.” It still has too many banks which has prompted severe competition for survival. This, he confides, is the crucible, which has forged the strength of Chinatrust. “The trees with the deepest roots are those that face the strongest winds growing up,” he points out.

“My point is that if you wanted to set your foundation for an attempt to build one of the first ever-global Asian banks, where would you look for your cornerstone? In the most profitable markets in the region, the oligopolistic markets, where spreads and fees are fat and banks overnourished? Or would you look for your cornerstone where competitive conditions are toughest? Where the winner succeeds because of focus, teamwork and sheer grit? A lot of fat men enter races, not many win.”
Chinatrust, according to DeNoma is a lean and mean machine with a substantial international footprint that deserves to make its mark in global banking.

He is unconvinced that Chinatrust’s main rivals from Taiwan, have the necessary networks to become global banks, yet. And more specifically that while some might be ahead in establishing a presence in China it does not mean that the race is over. “China is a marathon with much less than a kilometre run, there’s still a long way to go.”

Taiwan is by many measures the most competitive banking market in the world, DeNoma points out, with razor thin margins. “For the same risk-rated corporates, we can get 100 to 300bp more outside Taiwan.” Despite the tough competition, he says, CTCB has been the profit leader in the industry this year because it has already achieved deep penetration of the market.” To be successful you need scale here and we’ve got that. We are going to build on that scale and defend it.”

DeNoma says Chinatrust has established positions in nine key international markets that have yet to be fully exploited. He thinks it could take 18-24 months for the bank to install extendable, scaleable competitive business models into these countries, but after that they will be capable of both organic and inorganic growth.

If all this plays out, DeNoma believes that Chinatrust will become one of the most attractive banks in the world over the next decade. Attractive to large Chinese banks because of its global network and global management skills as China internationalizes. Attractive to large Western banks because it will be one of the best managed Chinese banks in the world as China grows more preeminent on the international stage. Because it will be attractive to both, it will be able to continue to raise capital and stay independent. If everyone wants to buy, then you don’t have to sell, grins DeNoma.

The July-August 2010 issue of The Asset carries the full interview with Michael DeNoma, CEO and president of Chinatrust Commercial Bank

The Asset website is at http://www.theasset.com