Anbang’s Rescue Is China’s Too-Big-to-Fail Moment
February 27, 2018 by James T. Areddy
SHANGHAI—A Chinese government takeover of Anbang Insurance Group Co. throws a lifeline to its policyholders—support denied to frustrated clients of some lesser-known financial firms when those companies hit turbulence before ultimately collapsing.
The China Insurance Regulatory Commission said Friday that a team of financial regulators would manage Anbang for at least a year. It justified the action in the second sentence of a public notice: “to protect the legitimate rights and interests of consumers and safeguard public interests.”
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Known abroad for bold acquisitions such as New York City’s Waldorf Astoria Hotel, the unlisted Beijing-based firm owes its war chest to legions of individuals who lent it money when they became policyholders.
Over the weekend, some of them deluged online forums in China to debate the fallout from government action on themselves, the stock market and the financial industry. If Anbang “went bankrupt and was unable to repay investors, the impact will be significant not only for the moment, but also in the future,” one wrote under a pen name on Baidu Tieba, a popular forum, saying any collapse would spark “chaos.” Others planned to bail on Anbang by redeeming policies early.
Their tone echoed the online chatter that spilled over into sporadic protests in recent years after the meltdown of smaller financial firms, including credit-guarantee companies and peer-to-peer lenders. Like Anbang, many rode a wave in internet-enabled finance known as fintech to tantalize cash-rich consumers with high-yielding investments that could outperform bank accounts, real estate and the stock market.
Cash crunches at a string of deposit-taking firms two years ago in Shanghai showed how quickly trouble erupts. At one, a bankruptcy specialist needed protection from a phalanx of police to address angry depositors. Investors in another blocked escalators and sang the national anthem in the fancy mall where it was based. Authorities taped over the logo of a peer-to-peer lender on a touristy street to keep it from attracting protests.
Anbang is huge, if not regarded by analysts as a systemic risk. Its website claims about $310 billion in assets and counts 35 million customers, including those of affiliate insurers in other parts of Asia and in Europe. Standard & Poor’s ranked Anbang third in size last year among Chinese insurers, with a 9% market share by policies written.
“I think there are similarities between Anbang’s investors and P2P investors. They are all risk-takers,” says Joe Zhang, an analyst and author of a book on Chinese fintech, “Chasing Subprime Credit.” “However, given Anbang’s size, the regulators may treat the two groups of investors differently.”
The government takeover appears to minimize the basic risk of a cash squeeze at Anbang if demand for its insurance falls off or it can’t get good deals disposing assets.
An Anbang spokesman said on Monday that the company fully supports the regulatory takeover and expressed its confidence in the interim management committee overseeing the business. “All the operations and business remain stable,” the spokesman said, adding that Anbang remains “continually committed to the overseas subsidiaries and investments.”