China: Regulators Seize Nine FIs Linked to Tomorrow Group

Source: Regulation Asia Editors, Regulation Asia 2020-07-20

The CBIRC has seized control of four insurance companies and two trust companies, while the CSRC has taken over two securities firms and one futures brokerage.

Chinese regulators have seized control of nin financial firms linked to Tomorrow Holding, the investment conglomerate owned by billionaire financier Xiao Jianhua.

Xiao disappeared from a Hong Kong hotel three years ago amid a corruption investigation. He was the key controller behind Baoshang Bank, which the government was forced to take over last year due to “serious credit risks”.

Xiao was said to have used Baoshang Bank to make inappropriate loans to companies connected to Tomorrow Holding, contributing to a buildup of bad assets at the bank. Baoshang Bank has since been structured into Mengshang Bank.

In a statement, the CSRC (China Securities Regulatory Commission) said it has seized control of two securities firms (New Times Securities, Guosheng Securities) and one futures brokerage (Guosheng futures), citing poor governance and that they concealed information about their shareholder structures and ultimate owners.

Meanwhile, the CBIRC (China Banking and Insurance Regulatory Commission) has said it is taking over four insurance companies (Huaxia Life Insurance, Tianan Life Insurance, Tianan Property Insurance, Yi’An Property Insurance) and two trust companies (New Times Trust, New China Trust).

Operations will continue as normal for at least a year. Debt obligations and creditor rights will not be affected. Nine other financial institutions have been assigned to supervise each of the seized companies’ daily operations.

> ALSO READ: CBIRC Discloses List of ‘Illegal Shareholders’ of Banks, Insurers (7 Jul 2020)

The seizures represent assets amounting to more than CNY 1.2 trillion (USD 172 billion), according to Caixin calculations.

The nine companies formed a key part of Tomorrow Holding’s financial business which backed many of its high-profile acquisitions involving complicated transactions and the use of shell companies. Many of the firms had funds embezzled by Tomorrow Holding, which ended up failing to repay money and creating risks for the institutions and their clients, according to Caixin sources.

According to Bloomberg, Tomorrow Holding questioned the decision by regulators in a statement on Saturday (18 July), saying the subsidiaries have not defaulted or seen much liquidity risk. The online statement was later deleted after several hundred thousand views.

CBIRC

China Securities Regulatory Commission

China: Regulators Seize Nine FIs Linked to Tomorrow Group

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