BREAKINGVIEWS-Pressure on Anbang could ripple outwards


Reuters

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Quentin WebbJune 20 (Reuters) - Stress on Anbang Insurance Group could
have ripple effects. With Chairman Wu Xiaohui detained, the
acquisitive Chinese insurer's access to funding could be
reduced, perhaps prompting asset sales. While regulators will
want to avoid turmoil, Anbang's size and sprawl add to the
uncertainty.
    Wu was detained by authorities on June 9, Reuters reported
on Thursday, citing people familiar with the matter. His
problems mark an escalation in an official campaign against
China's insurance sector, which has used high-yielding,
investment-like products to fund breakneck growth and fuel
corporate raids. Yao Zhenhua, chairman of rival Foresea Life,
was banned from the industry for 10 years in February. And in
April, graft-busters nabbed China Insurance Regulatory
Commission Chairman Xiang Junbo, making him the most senior
financial official ensnared in a long-running corruption
crackdown.
    Anbang's fate matters because of how deeply it is woven into
domestic and international financial systems. The unlisted firm
has shot from obscurity to become an industry heavyweight. Last
year it accounted for 5.3 percent of all insurance premiums sold
in the People's Republic, and 19.4 percent of investment-type
products, according to Jefferies. According to its website, it
boasts nearly 2 trillion yuan ($294 billion) of assets, making
it roughly as large as a major European player such as Munich Re
of Germany.
    In the process, it has gobbled up assets, presumably in part
to help generate the yields it has promised to customers. These
include financial institutions in Western Europe - Dutch insurer
VIVAT, Belgian counterpart Fidea, and Belgian bank Nagelmackers
- as well as a majority stake in South Korea's Tongyang Life
Insurance <082640.KS>. It spent nearly $2 billion on the Waldorf
Astoria in New York and another $6.5 billion on Strategic Hotels
& Resorts, the hotel group previously owned by Blackstone
<BX.N>.
    Back home, the company and its subsidiaries have amassed
slices of Chinese public companies totalling more than $27
billion, Eikon data shows. Its portfolio is heavy on property
developers and financials: most notable are large stakes in
China Minsheng Banking <600016.SS> and China Merchants Bank
<600036.SS>, of 17.8 and 10.7 percent respectively, according to
the banks' annual reports. But Anbang also has large positions
in firms specialising in wind power, traditional medicine, and
department stores.

    BAD PUBLICITY
    Unlike banks, most insurers do not need constant funding
from other lenders or capital markets. So they are less prone to
sudden crises of confidence. But they can still be vulnerable.
One concern about Anbang and China's other rapidly growing
private insurers is a mismatch between assets and liabilities -
long-term assets like hotels or equity positions, funded with
investment-style insurance products.
    These are not stable funding sources for two reasons. First,
savers can typically get money back fast by paying a small
penalty. Bad news could damage confidence and increase
redemptions. Second, if policies are banned, or distribution
channels closed, it will be harder to sell new products. In
either case, payouts could outstrip inflows from new sales. The
ultimate recourse could be to sell assets to meet those cash
needs.
    Customers will not necessarily withdraw, as long as their
payments keep coming. Many bought via banks and do not
necessarily see their policies as Anbang investments. Censorship
might also curb the spread of bad publicity.
    However, choking off distribution could prove more serious.
Reports say banks, Anbang's key sales channel, have in some
cases stopped selling on its behalf, though the company disputes
this.
    Attention has already focused on a potential worst-case
scenario for China's unlisted insurers. In May, media quoted an
alarming letter, supposedly from Foresea, warning the CIRC that
if it could not resume selling products to meet upcoming
redemptions, social unrest and "systemic risks" could arise.
However, Foresea would not confirm the letter's authenticity and
told Reuters whoever was circulating it wanted to create more
financial risks.
    Such an outcome looks too pessimistic here. For a start,
authorities have so far placed fewer restrictions on Anbang's
business than on Foresea's. If Anbang needs to scale back, it
might have to shed some of its easier-to-sell assets. It could
retain offshore businesses, which are separately financed and
are not held via onshore subsidiaries. There is also an
industry-backed guarantee fund that China could dip into.
    Authorities want to curb speculative froth and potentially
reckless behaviour but also avoid panic and economic pain. With
similar battles already underway in property and shadow banking,
they are walking a familiar tightrope.

    On Twitter https://twitter.com/qtwebb

    CONTEXT NEWS
    - Banks are still distributing Anbang Insurance Group
products, a spokesman told Reuters on June 15, after Bloomberg,
citing a person familiar with the matter, reported Chinese
authorities had asked lenders to suspend some business deals
with the unlisted insurer.
    - Employees at several Chinese banks told Reuters they
stopped selling some Anbang products, in some cases several
months ago and also because the products had "sold out".
    - Two days earlier, Anbang said Chairman Wu Xiaohui was
temporarily unable to fulfil his duties. He was detained by
authorities on June 9, people familiar with the matter told
Reuters. The company said it was operating normally in his
absence.
    - China Minsheng Banking has lent Anbang $100 million, and
not 100 billion yuan ($15 billion) as rumoured, Chairman Hong Qi
told a shareholders' meeting, according to Caixin magazine. A
spokesman for the bank, which counts Anbang as a major
shareholder, told Reuters the account was correct.
    - For previous columns by the author, Reuters customers can
click on [WEBB/]
    - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: http://bit.ly/BVsubscribe

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
BREAKINGVIEWS - Anbang drama is coda to China's M&A craze
[nL3N1JB0G8]
BREAKINGVIEWS - Chinese insurers put too many eggs in one basket
   [nL4N1G12E2]
BREAKINGVIEWS - China regulator has healthy fear of goblin raids
   [nL4N1E113V]
Bloomberg piece    https://www.bloomberg.com/news/articles/2017-06-15/anbang-woes-deepen-as-banks-said-told-to-halt-business-dealings
Even before Anbang chairman detained, some banks halted its
products    [nL3N1JC31Z]
Minsheng chairman says loans to China's Anbang total only $100
mln -Caixin    [nL3N1JF03G]
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Peter Thal Larsen and Katrina Hamlin)
 ((quentin.webb@thomsonreuters.com;)(Reuters
Messaging:)(quentin.webb.thomsonreuters.com@reuters.net))

Keywords: ANBANG GROUP CHAIRMAN/BREAKINGVIEWS



This article appears in: World Markets , Stocks , Economy , Banking and Loans
Referenced Symbols: 082640 , BX


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