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

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.


Dutti 847328_3527 Thu, 06/15/2017 - 18:13 Permalink

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.

In reply to by 847328_3527

Bryan Thu, 06/15/2017 - 15:41 Permalink

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

sanjuandon Thu, 06/15/2017 - 17:05 Permalink

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.

Ghost who Walks sanjuandon Thu, 07/13/2017 - 23:46 Permalink

They normally do work to make it look like an accident.Plot based on actual story;

  • Special train from Beijing suddenly arrives in town that was not scheduled with a large group of investigators and senior party officals
  • Discovery that part of the lands of a local military base have been acquired and sold to a Taiwanese company that is building a golf course and resort on the land
  • Deputy mayor jumps out of very high window to her death 

In reply to by sanjuandon

surf@jm Fri, 06/16/2017 - 13:14 Permalink

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.....

Ghost who Walks surf@jm Thu, 07/13/2017 - 23:38 Permalink

A great question, however I offer the following.There is a lot of high-quality goods made in China as well as the use once and throw away stuff.It depends on what the importers into your country want to buy.There is an understanding that the best SME's are family run companies because the family trusts each other to control the money, the sales and the purchasing.The dodgy business behaviours have a multiplicity of under-lying reasons. I guess that since the Party is the pre-eminent institution it is the cause of the problems as well as the solution.The chinese have a saying "You can't build a strong building if the columns are not straight!"The CCCP runs many thousands of focus groups (for want of a better description) where local people are "invited " to party schools to participate in working out what needs to be "improved".I'm wondering if we lack the understanding of how difficult it is to manage such a large and diverse group of people in real time.It seems that eventually that many schemers fall foul of the system. They use their networks to creatively expand and things work...until they don't.Everyone loves a winner and creating wealth can cause a few eggs to be broken. Once the CCCP thinks that a negative trend has emerged it will evaluate what can and should be done. There is a strong belief in punishment along with reward.

In reply to by surf@jm