KUALA LUMPUR, Feb 15: Malaysia's desire for bank mergers has suffered a setback following an announcement by two large financial groups that their attempt at marriage had failed, but analysts said there was still hope the drive could succeed.Analysts said the failure of the proposed merger between Commerce Asset-Holdings Bhd and Rashid Hussain Bhd would not discourage others from seeking partners ahead of the March 31 deadline for mergers of financial institutions.
"It's a bit of a setback, but it should not affect ongoing talks or discourage other banks from starting negotiations," said Phua Lee Kerk of Jupiter Securities.
Commerce Asset broke the news of the failure of the talks late on Friday, one week after the two groups announced they were in talks to merge their banking arms -- RHB Bank Bhd and Bank of Commerce (M) Bhd.
It said the merger plans were dropped because they were not meeting "the primary objectives of maximising value for Commerce Asset shareholders" and ensuring the success of theplanned merged bank.
But Rashid Hussain disagreed, saying on Saturday that Commerce Asset had backed out of the merger plan after agreeing on the outlines of the deal.
"We have negotiated a deal with Commerce Asset that takes into consideration the agreed parameters and which will result in enhanced shareholder value," it said, adding that the merger would have created Malaysia's second largest bank with 62 billion ringgit ($16 billion) in assets.
Analysts said disagreements over price and control may have been key issues in the breakdown of talks.
"The key issues in merger talks are valuation and management...who will have ultimate control. It's a difficult task," said an analyst with a foreign brokerage.
The government, worried that economic slowdown and international competition will prompt a banking crisis, has told banks and finance companies to come up with merger plans by the end of March.
But the pace has been slow, and besides the Rashid-Commerce talks, only one other banking merger planhas been announced.
Deputy prime minister Anwar Ibrahim, reacting to the failed Rashid-Commerce talks, said late on Friday that the government would stick to the March 31 deadline for financial institutions to merge.
Anwar said the banks would have to continue negotiations and the government would not compromise on this.
But analysts feel that given the difficulties banks face in tying up mergers, the tight timeframe should be extended.
"It takes time for bank mergers to be finalised as there are a lot of differences. Mergers are difficult, unlike a straight forward takeover," Phua said.
Analysts also agreed with prime minister Mahathir Mohamad's comment on Saturday that banks which face a deadlock in their merger negotiations should seek arbitration.
Mahathir also urged banks to be reasonable in their merger negotiations."I see the need for a mediator or arbitrator in merger talks. It will be fair to both parties," said the foreign brokerage analyst.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
