China regulator seizes Anbang, chairman faces fraud prosecution

China's government will take temporary control of Anbang Insurance Group and prosecute founder Wu Xiaohui for alleged fraud, cementing the downfall of a politically-connected dealmaker whose aggressive global expansion came to symbolise the financial overreach of China's debt-laden conglomerates.

The move adds a high-profile scalp to President Xi Jinping’s anti-corruption drive and allows the government to protect thousands of Chinese citizens who funded Anbang’s meteoric rise by piling into its high-yield investment products. It suggests that after months of clamping down on acquisitive non-state companies, China is increasingly acting to insulate the economy from their shaky finances.

It's a remarkable turn for Anbang, which burst onto the global scene with the purchase of New York's iconic Waldorf Astoria hotel in 2014 and only a year ago was in talks to invest in a company owned by the family of Jared Kushner, U.S. President Donald Trump's son-in-law and senior adviser.

Chinese regulators announced on Friday that they would take over Anbang for at least a year and remove Wu from his role as chairman. Wu, who was detained by authorities in June, was charged with alleged fundraising fraud and embezzlement by Shanghai prosecutors.

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Under Wu, Anbang came to epitomise the voracious Chinese appetite for overseas acquisitions that saw trophy assets snapped up around the world -- sometimes at prices that left observers scratching their heads. The full cost of that headlong spree started becoming clear last year as Chinese authorities, alarmed by mounting financial risks, slammed the brakes on Anbang and peers including HNA Group.

Wu’s links to the Chinese political elite became fodder for media scrutiny as his ambitions grew, with acquisitions ranging from the Waldorf to insurers in Korea and the Netherlands. Wu established ties with the family of reform leader Deng Xiaoping after marrying Deng’s granddaughter Zhuo Ran.

A team led by the China Insurance Regulatory Commission, along with members from the central bank, banking, securities and foreign-exchange regulators, is taking over the company starting Feb. 23, according to the statement Friday, which added that Anbang’s external liabilities won’t be affected and the insurer’s business will continue.

Regulators said they took control after illegal activities at Anbang endangered the company’s solvency. The Beijing-based company’s operations currently remain “stable,” they said.

"Regulators want to solve Anbang's problems without triggering systemic risks," said Zhou Hao, an economist at Commerzbank AG in Singapore. "After weighing pros and cons, it's the best way."

Details around Anbang’s ownership structure and biggest shareholders are shrouded in secrecy, with few company disclosures on the matter. China’s government had been seeking to broker the sale of a stake in the insurer, people familiar with the matter said last month. Regulators had also pushed Anbang to sell assets abroad, people familiar with the matter said last year, which the insurer had denied at the time.

While many details about regulators’ plans for the insurer remain unknown, some plans were disclosed in statements from the government.

President Xi and his top economic deputies have vowed to make controlling financial risks their priority, a pledge renewed at the Communist Party’s twice-a-decade leadership congress last year. China’s insurance regulator, along with the main banking watchdog, have announced a flurry of rules since last year to promote stability.

Anbang has almost 2 trillion yuan ($315 billion) in assets and owns businesses spanning insurance, asset management, financial leasing and banking, according to its website.

Bloomberg