Ping An Insurance Slammed by Fortis’ Crisis, Exec Salaries

Ping An Insurance Slammed by Fortis’ Crisis, Exec Salaries

As the global financial fiasco bubbles along, China’s Ping An, its second largest insurance company, has found itself in hot water indeed.

Six months ago Ping An invested big in Fortis, a Belgium-based banking and insurance provider. Fortis now looks to be doing a Bear Stearns and that investment may be gone. Earlier this year, Ping An’s attempted fundraising stock issue worth 160 billion yuan caused a crash on the A-share market. And lately news of the salaries of Ping An executives has investors and the public up in arms.?

On the evening of Sept. 26, China Ping An Insurance (Group) Company, Ltd. (Ping An), announced its investment losses for the drop in Fortis’ share price had reached 10.524 billion yuan.

Ping An announced that based on international capital markets and the stock price volatility of Fortis, it will decide soon whether to make provision for asset impairment in its third quarter financial report, at the same time it will reflect market value losses in its income statement.

The notice said that regardless of any provision for impairment, the company’s capital and solvency remain adequate.

According to a conservative estimate, the provision might amount to as much as 5 billion yuan based on 30% ratio for provision. Ping An’s net profit in the first half was 7.102 billion yuan.

At the same time, Ping An stated that neither it nor its subsidiaries have risk exposure to Lehman Brothers, American International Group (AIG), Merrill Lynch, Bear Stearns, Fannie Mae, Freddie Mac or Washington Mutual in the US.

Last November, Ping An invested 1.81 billion euros in the purchase of 4.18% of the shares of Fortis on the secondary market, making Ping An its largest single shareholder. Ping An has gradually increased share holdings to 4.99%, the upper limit agreed on by two sides. This is the Chinese insurance industry’s biggest overseas investment.

On March 19 this year, the two companies separately announced that they will establish a global asset management partnership. Ping An is slated spend 2.15 billion euros (about 24.02 billion yuan) to buy 50% of the shares of Fortis Investment Management, a Fortis subsidiary conducting global asset management business. The deal has not yet been granted regulatory approval, according to Bloomberg Press.

November last year saw Fortis shares selling for around 17 euros, while the latest closing price was 5.20 euros per share, a fall of 21% over the same day. The bank, which is highly important to the regional economy, is on the edge of collapse as seized-up credit markets have made it extremely difficult for it to finance its operations. The governments of Belgium, Luxembourg and the Netherlands are scrambling to shore it up.

On September 26, Fortis Group announced it will replace the current CEO Herman Verwilst with 52-year-old Filip Dierckx. Herman Verwilst took the position after the sudden departure of the former CEO.

Fortis’ second quarter financial statement showed that net profit during that period was 830 million euros, down 49% from 1.62 billion euros netted second quarter a year ago.

In July this year, as Fortis shares fell below 10 dollars, institutions begun selling Ping An shares.

In addition to its floundering investment in Fortis, Ping An caused a huge stir this year among the public and investors with its pay-outs. Pre-tax salaries in 2007 of three directors and senior executives topped 40 million yuan. The pre-tax salary of Ma Mingzhe, president and CEO, alone was 66.161 million yuan (almost $10 million), equivalent to 181,200 per day, the highest of any senior executive of an A-share listed company.
Particular resentment over Ma’s compensation may well be related to two things: first Ping An’s try at launching of a 160 billion yuan refinancing plan on January 21 this year was one of the triggers of the subsequent and continuous A-share slide; and second, Ping An’s share price has fallen from last October’s high of 149.28 yuan to its current lowest price of 48.30 yuan, a fall of 67.64%, a source of great pain for Ping An A-share holders. Against this backdrop, Ma’s 66.16 million yuan a year is conspicuous, and investors and the public see cause to be indignant.

On the last trading day before National Day, Ping An closed at 33.27 yuan on the news of Fortis Group, and fell 8.25% at closing, only one step away from its IPO price.