Jeffrey Koo Jr., 37, is president of Chinatrust Commercial Bank, the flagship of the Taiwanese Koo family's financial-services empire, which includes insurance, stock brokering, and banking. Koo Group is well poised to take advantage of the Financial Holding Company Act passed by the Taiwanese Parliament on June 27 enabling mergers of financial services. Koo recently spoke in Taipei with BusinessWeek Asia Correspondent Frederik Balfour. Here are edited excerpts of their conversation:
Q: What benefits do you see from the new law allowing you to merge all your companies?
A: Initially we were fascinated with the potential, but we have been working with a lot of advisers, and there is no way Chinatrust can be a so-called universal bank. Or [rather] it could, but it would be a lousy one. There is no way we can compete with Deutsche Bank, ABN AMRO, or HSBC. We have limited resources, and each piece requires a lot of capital.
Q: What is your strategy?
A: Six months ago, we decided that the best thing for us is to do a [merger or acquisition] deal with a good bank. We're not interested in big jumbo banks. We are very conservative about Taiwan's [economic] future. I'm going to expand like crazy in retail banking. Taiwan [also] has lots of potential in the trust business, which relates to asset management, and in private and personal banking.
Q: What about credit cards?
A: We already have 3.5 million [credit-card holders]. We now have a joint venture with 7Eleven [convenience stores] where we will put ATMs [in the chain's stores] to help access the Internet.... We can provide a very good database to 7Eleven so [the company can] know the profile of customers coming in the store with debit cards. We're going to spend $100 million to build up this channel in the next five or six years. We've also announced a joint venture with China Petroleum to expand to their 4,000 gas stations. And we have banking machines in the subway lines.
Q: Will your bank be pinched by Taiwan's economic downturn?
A: In Taiwan, even though we're going to face a recession for the next couple of years, [personal finance services] have a lot of room to grow. In the U.S., people have five credit cards, in Taiwan they have three to four. China Trust has room to grow to 7 million card[holders].
Q: When do you plan to enter China?
A: Within a year. The Ministry of Finance [of Taiwan] is finalizing the regulatory issues to give us permission. There will be 10 licenses for representative offices. After that, upgrading to a branch office is up to China, not Taiwan.
Q: Are you missing out on much business on the mainland?
A: A huge amount. About one-third of my customers have presence in China. They're using Citibank, ABN AMRO, and HSBC. [The rival banks] are making a lot of money from our customers there.
Q: What do you think of Taiwan's nonperforming-loan problem and plans to use asset-management companies to solve it?
A: Unless the government is behind the idea [with an enforcement effort], it won't work.
Q: What's the real problem?
A: Real estate prices have fallen 40%. And the only way to get [nonperforming loans] down is to sell property. But banks are thinking, "I'm not going to take a loss. Who cares about NPLs? I'm going to hold onto it [until] things recover." That's the illusion. Meanwhile, banks are lending their customers [the money to cover] the interest payments.
If I had reacted like every other bank, my profit would be double [what it is now]. But I told [my] father and the board, "Forget about profit. Get rid of NPLs. You want a good quality bank." That's why we're [writing off a lot in] problem loans. We get a lot of support from foreign institutions whose shareholdings have increased from 20% to 28% in the past six months.
Q: How about your overseas plans?
A: We have 50 branches overseas. This includes Chinatrust USA, which we bought from the Koo family. It was a very expensive deal, and the market didn't like it, though my father did. We paid 2.5 times or 3 times book. We should've just had an open bid. That really hurt our stock. We realize we can't do that any more. Now, any Koo internal transaction will be an open bid.
Q: Is it a disadvantage that your company is still family-run?
A: I like to consider myself as a professional, but it's difficult to be recognized [as one]. It's difficult for me to convince people my father's age who have known me since I was little. I have trained my own CFO and team to do a road show, and invited Moody's and Standard & Poor's to do [credit] ratings and ensure that the bank is more transparent. I don't want to be a typical Chinese family-run bank.
Q: What's your medium-term forecast?
A: We're revising our three-year projections. We were too optimistic a couple of months ago. Our target is by 2004 to be among the top 100 banks in the world, with net profit of $1 billion. But growing organically without China is too difficult.