Anbang Just Became A "Systemic Risk": Revenues Crash 90% As Its Chairman Is "Detained"

Tyler Durden's picture

As reported earlier this week, overnight Bloomberg confirmed that Wu Xiaohui, the chairman of China's insurance conglomerate which recently made headlines in the US for nearly reaching a deal with Jared Kushner over 666 Fifth Ave., was detained by a joint team of Central Commission for "Discipline Inspection" and police for questioning. It adds that that Chinese investigators who detained Wu are carrying out a wide probe that includes looking into the sources of funding for the firm’s acquisitions overseas, possible market manipulation by insurers, and “economic crimes."

The Wall Street Journal reported earlier that investigators were een checking whether Wu - whose fortune last year was calculated to be just over $1 billion - was involved in bribery and other economic crimes at Anbang and that Wu couldn't be contacted for comment. As noted on Wednesday, Anbang said Wu couldn’t perform his duties for personal reasons, a story which has since been disproved. 

The authorities are said to be examining Anbang transactions including acquisitions overseas and their funding. According to Bloomberg;s sources, the probe also fits into a broader investigation of possible market manipulation by insurers, although they didn’t specifically define the term “economic crimes.” The action is the result of the government’s crackdown on a sector that is "supposed to help families and companies cut their financial risks, but has recently become a hub for rampant financial speculation."

Yet while Wu's fate now appears sealed, swallowed by China and unlikely to reemerge any time soon if ever, questions have emerged about the viability of Anbang Insurance Group itself, which as the NYT reported overnight, has seen its growth come to a "screeching halt" as Chinese investors who helped fund its meteoric rise no longer want to have anything to do with the politically connected company which is "no longer in Beijing’s good graces."

Specifically, according to government data released on Thursday, Anbang’s sales of life insurance policies and investment products, an key source of cash, stopped almost completely in April after tumbling sharply in March. It wasn't just Anbang: across the insurance industry, where the (ab)use of Wealth Management Products is prevalent, sales slowed in April compared with earlier in the year.

More details:

From January through March of this year, Anbang raised three-fifths as much money as it raised all of last year, government data shows. It has maintained a large stockpile of cash after a series of big investments fell apart, including a $14 billion bid for Starwood Hotels and Resorts and a deal for a Manhattan office tower with Kushner Companies, the family real estate firm partly owned by Jared Kushner, the son-in-law of President Trump and an administration adviser.

 

But Anbang’s latest figures are eye-catching for the opposite reason. Including new kinds of policies and wealth management products, it took in only $218 million in April this year, down from $5.92 billion in the same month last year, the government data on Thursday showed.

That was the biggest Y/Y collapse in the company's premium income on record, and as a result Anbang is now under "acute" financial pressure. The NYT notes that "its revenue from existing life insurance policies and certain wealth management products was down 88 percent in April compared with the same month the previous year. The rest of the industry was up 4.5 percent in the same period."

While largely ignored on the list of potential Chinese risk factors, Anbang's troubles could soon become systemic.

In early May, Chinese insurance regulators ordered Anbang to stop selling two investment products. One, they said, was improperly marketed as long-term insurance while a crucial application for the other lacked an actuary’s signature. By that point, Anbang was already in trouble. Questions about Anbang’s financial strength had begun circulating on social media in China in March and April, as Chinese officials publicly raised questions about sales of wealth management products by some insurers.

If the drop in revenue is steep enough, Anbang could eventually be forced to liquidate assets. A big factor will be what happens with its existing policies and investment products, which comprise China's shadow banking system. As the NYT adds, Anbang’s annual report provides little information on the monthly tempo at which its previously issued investments are maturing. The company might need to pay them out if they are not rolled over into further investments with the company. The company’s policies do have very stiff penalties on early redemption to discourage holders from turning them in early for cash. Anbang could raise money by selling some of its investments, but that could take time.

Additionally, the conglomerate, which over the past 3 years was nothing short of the world's most aggressive "roll up" has been an active investor in Western hedge funds, in addition to making outright acquisitions of overseas companies. And those terms tend to impose severe limits on Anbang’s ability to ask for its money back quickly. That said, a firesale of Anbang assets, which include the Waldorf Astoria, should be a fascinating event.

The biggest risk from a potential unwind of Anbang, however, is the fate of its billions in  WMP "assets" and whether any troubles at the insurer lead to investor impairment, and a potential run on China's $8.5 billion "shadow bank" considered by many as the Achilles heel of China's massively overlevered financial system.

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lester1's picture

Never fear.. The Federal Reserve has PPT loaded up with fresh electronic funds and ready to go !!

jcaz's picture

...Aaaaaaaaand it's gone.....

The smart ones have already fled China- this dumbshit is the 2nd layer- he actually believed he was running a real company......

Drimble Wedge's picture

If  you run behind car, you become exhausted

If you run in front of car, you become TIRED

Thought Processor's picture

 

 

Yep, this one might leave a mark.

 

To be sure though it will only serve to reinforce the confidence that the Chinese people have in their overall system. 

 

Should we expect the crypto currency rally to resume shortly?

847328_3527's picture

he probably met with Putin personally...even though no one has proof...we need a $100 million dollar investigation!

Dutti's picture

I wonder if Anbang and it's Chairman has learned from the smart crook Allen Stanford.

Stanford bought up assets, i.e. an Island for a certain undisclosed $ amount, then valued it in the books for 10x for what he bought it for. This Ponzi worked well for a while.

Anbang is in Insurance. They collect premiums for a long time before they have to pay out. On the books - chinese accounting - they overvalue their assets and show yuuuge paper profits. This brings in more sheeple who beg to participate in the ponzi.

Seems to work well for a while, but unlike the US gov., they cannot print money to paper over the fraud.

fx's picture

Seems a bit as if the unravelling in China has just started with a (an)bang.

yomutti2's picture

They said that he couldn't perform his duties for "personal reasons".

Is having a bullet in your head a personal reason?

peopledontwanttruth's picture

It MIGHT but thinking more that they've learned how to kick the refurbished can down the road pretty well as they've done it so many times. I don't think we'll see any real marks until the entire derivative market stumbles and then the dominoes will start rolling like a competition.

CJgipper's picture

crypto rally in 3 2 1...

 

I bet when today ends, you could have made 20% ROI or more in a DAY.  It's almost like how markets are supposed to work when teh FED isn't manipulating them.

stitch-rock's picture

Said before:
No one has seen true price discovery in our lifetime

Bryan's picture

I have a new Chinese company name idea:  Happy bing boing bang lucky bangy anbang panda bangy bang boing.  They sell condoms.

youngman's picture

well you dont have to actually sell them..just say you do...and take out a big loan....

youngman's picture

Aaaaaaaaand...Bang

shovelhead's picture

Anbang...

It's gone...Next.

Sorry, I couldn't resist.

Damn, you beat me...

shovelhead's picture

I guess a few people got a bit nervous about holding Happy Floating Pig Pork Bun LTD. in their whole term life policy.

847328_3527's picture

"Best company is Long Er Wong that makes that special 'enhancement cream' ...it really works!"

 

~ Ron Jeremy

Agent P's picture

No soup for Wu!

withglee's picture

Same game Warren Buffet plays isn't it?

NuYawkFrankie's picture

re Anbang... 90% collapse in revenue

Wow! Anbang sounds suspiciously like it could be the Chinese arm of the Clinton Foundation!

Forbes's picture

$5,92 billion --> $218 million = 96.3% decline.

Vinividivinci's picture

Anbang + Gangnam = Gangbang

sanjuandon's picture

do they have nailguns in CHina....i'm thinking Comey gets nailgunned here soon....and this guy soon in china...although in CHina they dont have to make it look like an accident.

DaBears's picture

Me no likie surplise Po Po platter, who buy my Mao-noploy toilet paper now?

Cordeezy's picture

Lol by "detained" do you mean "kidnapped"

 

 

www.escapeamazon.com

 

 

Ban KKiller's picture

"Assets" ha-ha, thats a good one. Are those assets not pledged to, say, a dozen banks? Better be first in line, if you can find the line. 

surf@jm's picture

What is it with China?.....

Is deceit, shoddy craftsmanship and flim flamming a Chinese tradition?..... 

Or, is it a result of Mao`s cultural revolution?....

I don`t remember ever reading that Marco Polo, brought back defective, shoddy Chinese goods, to show the Europeans.....