Ping An’s Case Study Solution
Introduction
Ping An Insurance Company ("Ping An") of China has become the country's second-largest life insurer by 2007. Its intention was to branch out into capital management and banking in order to give financial services to everyone. The "three-pillar strategy" of Ping An was built on these three companies. Two local banking acquisitions have already been completed, and none in capital management. Ping An purchased a 4.2% share in Fortis, a Belgo-Dutch banking behemoth, in November 2007 and announced plans to acquire 50% of Fortis' asset management division, that would be a significant step toward achieving its objective.(by Andrew S. Li, 2009)
Problem Statement
The negative impacts of the global economic downturn and the US mortgage problem destroyed this ambitious international expansion plan. The business must reflect on key lessons, review its approach to investing abroad, and understand how to manage risk going forward. (Ivashina, 2010)
Situational Analysis
Expansion
Peter Ma, the supervisor of a minor, state-run security-fund company close to Shenzhen, in 1985. It concentrated on offering liability, property, and freight insurance. Ping An branched out into life insurance in 1994. The corporation built a variety of subsidiaries, including trust, health insurance, and annuities insurance providers, and acquired several banks as it evolved into a diverse financial services provider. Ping An has eight national subsidiaries by 2008. Ping An developed a cutting-edge company culture by fusing Western management theories with traditional Chinese philosophy. 68 of the top 100 executives at the corporation were hired from outside the country, in keeping with a company culture that blends the East with the West. Life insurance, property and casualty insurance, banking, and securities were the main contributing business units. The wealth management division did not contribute a sizable amount of revenue as of 2007. In 2005, Ping Ping Asset Management Company Ltd was established. China Ping Ping Asset-Management Hong Kong Co Ltd was also founded in June 2006.
Costs
John Pearce, a former chief executive of Colonial First State Investments, the largest fund manager in Australia, was hired in January 2007 to serve as chairman and chief investment officer of Chinese Ping An Asset- Management (Hong Kong) Co. Ltd. With $49.0 US
Pearce intended to build and broaden the money management industry by entering international markets and compete to manage money for institutional investors using his $1 billion in internal resources.Ping An declared on November 29, 2007, that it had acquired a 4.2% holding in Fortis, making it the company's largest stakeholder. The shareholding was subsequently raised on January 22, 2008, to 4.99%.To prevent dilution, a second issue of 7.5 million additional shares were made on June 26, 2008, totaling US$3.42 billion. 46 The Ping An representative was asked to join the Fortis board of directors as long as their stake remained above 4%.
Fortis's stock was traded at a price-to-book ratio of 1.1x there at time of investment. Comparatively, domestic Chinese banks traded in the 3.0-4.0x range, whereas Hong Kong banks transacted in the 1.8-2.5x range. Following the announcement, Ping An shares increased by 6.73% while the Hang-Seng Index climbed increased by 3.92%.
According to a Goldman Sachs analysis, Ping An would gain in three different ways. The scope and products of Ping An's capital management would first be improved, with third-party asset management receiving special attention. Second, Ping An would learn skills in marketing, research, information technology, investment management, and product creation. Third, the joint venture may provide Ping An a competitive edge over local rivals in products for international investments and investments. Ma referred to the agreement as a crucial step in the company's three-pronged strategic plan.
Risk Management at Ping An Company
Currently the company is facing wide range of risks and uncertainties that have great potential to negatively impact the company’s operations and its future expansion plans. In order to tackle with this risks, the following risk management process have been conducted so that the firm can effectively implement and incorporate this process to deal with its current and potential risks.
Risk Analysis at Ping An.
The company has been facing a lot of risks to hinder its current and future expansion plans. Some of the prior and current risks involved are discussed as following.
Fall of Fortis
On Monday, September 29, 2008, Fortis succumbed to the global credit crisis. Fortis had appointed its third top executive in 3 months the previous Friday. The share price fell to its lowest level in ten years. By committing more than $17.5 billion, Belgium, the Netherlands, and Luxembourg saved Fortis from bankruptcy. As payment for this rescue, each nation took a 49% ownership stake in Fortis in their participating country. By October 3, 2008, Fortis's share price had dropped by 72% from Ping An's initial outlay in November 2007, prompting Ping An to declare a 66percent annual write-down of a Fortis investment.
Furthermore, Ping An declared that it would end the sale and buy arrangement with Fortis Investment Management's 50% interest would be acquired by Fortis Bank, subject to regulatory approval.Due to an asset impairments of US$3.3 billion connected to its holding in Fortis and losses in stock funds, Ping An announced a 99% decrease in net profit for 2008 on April 8th. Since October 2007, the stock had shed more than 90percent of total of its value.
Global Downturn
The global economic system is continuing to require adjustment over than a year later, and the credit and money market were suffering due to a lack of confidence in the precise effects of the unrest on the durability of banking firms and their capacity to withstand the recent shocks.(Nelson, 2014). This is a great risk to the company as the company plans to expand globally.
Succumbing Financial Firms
Many banking firms are under intense pressure to trim their portfolios and boost their capital bases, which is accelerating the already well-underway rapid deleveraging process. Moreover, in the months that followed Bear Stearns' takeover and Lehman Brothers' demise, the financial market turmoil increased once more and having undergone a more harmful and disruptive phase in which major financial institutions ended in failure or had to be saved by either each other private counterparties or government bodies, while the viability of the asset banking sector as a whole and of "the originate to distribute business" business model was questioned.
One of the most significant aspects of the current turmoil has been the sharp rise in overall financial sector uncertainty and the increased prevalence of just what economists refer to as "asymmetric information" in the financial markets. As an illustration, the fact that debtors are better informed than lenders regarding the risks and potential rewards linked with a project for that they are seeking financing....................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
Related Case Solutions & Analyses:
Airbus A3XX: Developing the Worlds Largest Commercial Jet (A)
Meeting the Diversity Challenge at PepsiCo: The Steve Reinemund Era
Social media: The New Hybrid Element of the Promotion Mix
Cirque du Soleil–The High-Wire Act of Building Sustainable Partnerships
HubSpot: Inbound Marketing and Web 2.0
Symbian Google & Apple in the Mobile Space (A)
Sanctuary Soft: International Expansion Strategies
U.S. Subprime Mortgage Crisis: Policy Reactions (B)
The Walt Disney Company and Pixar Inc.: To Acquire or Not to Acquire
HP: The Computer is Personal Again
