There’s a rumor floating around Chinese social media that Wu Xiaohui, chairman of Anbang Insurance Group, has been detained by authorities in Beijing. Let’s note, right away, that Anbang has denied this, and told The Real Deal that business is going on as usual. With that out of the way, though, it is also worth noting that in China, rumors like this shouldn’t be dismissed so quickly. We’ve heard the “there’s nothing to see here” kind of line from companies before, only to later learn that in fact there was something to see. Bank bosses and other executives sometimes go off the radar, and it’s often kept quiet or outright denied even when they run publicly traded businesses. Once, a hedge fund manager was reportedly detained by the government for days as part of an insider trading investigation. When she emerged, she told the press she was hiking in the mountains and eating berries and it was all a big misunderstanding. Her husband had already told Reuters and Bloomberg News that she was meeting with “relevant industry authorities.” Sometimes, like in that fund manager’s case, the person reappears as if nothing happened. That could be because they’re not the government’s target anyway, but rather someone being interrogated along the way to a bigger fish. The government has its reasons, and the people can only speculate as to what they are. In Anbang’s case, the speculation is proceeding along two lines. The first may be because of the company’s investments abroad. Anbang is a massive financial firm that recently purchased the Waldorf Astoria, has done a string of real estate deals in Vancouver, and tried to buy Starwood Hotels for $14 billion. Wu, the chairman, also met with President Donald Trump’s son in law and advisor, Jared Kushner, and almost bought a stake in the Kushner family’s flagship real estate holding, 666 Fifth Avenue, which has been suffering losses under a crushing debt load. Anbang never struck the deal, though. Either way, this foreign asset gathering may have suddenly become a problem in China. Government watchdogs started looking into the insurance regulator earlier this month because the entire industry has been buying abroad, and Anbang’s spree has been particularly flashy and large, so it makes sense that it would be of interest if Beijing wants to put an end to overseas land deals.
Have you ever heard of China Minsheng Bank?
Anbang, however, also has a tie-in to the broader Chinese banking system, thanks to its 20% stake in China Minsheng Bank – China’s biggest private lender.
On Thursday the South China Morning Post reported that officials are suddenly focusing on what’s called shadow banking – that is off the books lending that sits outside of the regular banking system – as part of an effort to cut back financial risk in the economy.
Beijing’s fears about the industry were spelled out on Tuesday when “financial risks” were referenced twice in a statement from a Politburo meeting chaired by Chinese President Xi Jinping.
Every regulator is on the move. The central bank has started to shrink its balance sheet and is trying to unify rules for the asset management industry; securities chief Liu Shiyu has lashed out at listed companies for irregularities, and the China Insurance Regulatory Commission is tightening its grip on insurers after former chief Xiang Junbo was put under investigation.
The market is already reacting to this. China’s stock market is sagging and bond yields are spiking. People are starting to wonder if this will sap liquidity from the entire banking system.
Minsheng, analysts say, could take a hit if the crackdown means it needs to move loans onto its books and start setting aside more money to protect against losses on those loans. “Regulators’ tightening stance on shadow banking transactions will accelerate the migration of quasi-loan exposures in Minsheng’s investment receivables / WMP books to its loan book, adding provisioning and capital pressure,” wrote Alliance Bernstein. This would add to a growing list of problems at Minsheng. The bank’s first-quarter earnings this week were a mess. Despite growing loans by 18.1% and assets by 23.6% from the same time last year, the bank’s net interest margin – the difference between interest it collects on loans and the money it’s paying out – fell to 1.43% from 2.11% over the same period. Net interest income fell 14.2% from last year. And, this month, Caixin reported that Minsheng had sold over $400 million of fake wealth management products. So far, the head of a branch in Beijing is under investigation for this.
That kind of Wild Wild West stuff may have been okay in China in 2014, before the stock market collapsed twice in a matter of months in 2015. But apparently not now.
Now the country may be playing an entirely different game