Goldman, Lehman Get Reduced Fees for Taiwan Merger

Sept. 18 (Bloomberg) -- Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. are getting less than half the minimum fees typically charged for arranging a $3 billion Taiwan banking merger, three people familiar with the terms of the deal said.

Goldman, the world's leading takeover adviser, accepted less than $1 million for advising state-backed Chang Hwa Commercial Bank on its union with Taishin Financial Holding Co., the people said, declining to be identified because the information is private. Taishin is paying Lehman Brothers Inc. a similar sum, they said.

Taiwan's biggest financial merger in six years may help New York-based Goldman break into the top three takeover advisers in Asia outside Japan, from fourth now and sixth last year. Wall Street firms are competing for a smaller pool of fees in Taiwan this year, with one takeover of more than $1 billion announced, from six in 2006, data compiled by Bloomberg show.

``Fee competition in this market has been quite intense, so investment banks need to diversify and differentiate instead of relying on high-profile deals,'' said Peter Yu, managing director of PricewaterhouseCoopers LLP's financial advisory services in Taipei. ``You can't expect to get a good fee with so much competition for mandates.''

Citigroup Inc. is the leading takeover adviser in Taiwan this year, followed by JPMorgan Chase & Co. and Taipei-based Yuanta Core Pacific Securities Co.

Spokesmen for Goldman, Lehman, Chang Hwa and Taishin Financial also declined to comment.

Standard Fees

Goldman, the world's largest securities firm by market value, beat rivals including Morgan Stanley and UBS AG, who were initially seeking at least $2 million for advising on the transaction, two people familiar with the matter said.

The fees Goldman and Lehman accepted may be the lowest for any multibillion-dollar merger in Taiwan, two of the people said. Investment banks typically charge 1 percent of the transaction size on Taiwan deals of up to $1 billion and demand a minimum $2 million to $4 million irrespective of deal size, said three bankers specializing in Taiwan mergers.

Advising on the merger may cost Goldman and Lehman less because it is prearranged.

Goldman didn't advise on any completed financial mergers in Taiwan between 2003 and 2006, according to Bloomberg data. In 2002, the firm worked on the $2.9 billion combination of state- controlled International Commercial Bank of China with CTB Financial Holding Co. to create Mega Financial Holdings Co.

That same year, Goldman also worked on state-owned Taipei Fubon Bank's $2.4 billion sale to Fubon Financial Holding Co. The U.S. firm earned more than $5 million advising Taipei Fubon Bank, two people familiar with the transaction said.

Government Push

Taiwan's government wants to sell Chang Hwa, in which it holds a 15.7 percent stake, to spur consolidation among the island's banks. More than 40 local and 30 foreign banks and hundreds of grassroots lenders serve 23 million people.

Chang Hwa Bank agreed to pay $6 million to Credit Suisse Group to help it sell a 22 percent stake to an overseas buyer in 2004, two people familiar with the transaction said. The deal fell apart because of disagreement over price.

Credit Suisse received about $12 million advising Hsinchu International Bank's $1.2 billion takeover by Standard Chartered Plc in September last year, two people familiar with the matter said. UBS and Morgan Stanley altogether earned about $9 million from the transaction, two people said.