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Probe of Great Wall executive comes as global investor concerns grow over defaults

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China is investigating an executive at one of its biggest state-backed distressed debt managers for graft, six months after a former senior banking official was executed over corruption charges.

Hu Xiaogang, vice-president of China Great Wall Asset Management, is under investigation by the Central Commission for Discipline Inspection, the country’s anti-corruption watchdog, for suspected “severe” violations, according to a statement published by the China Banking and Insurance Regulatory Commission.

The probe is the latest indication of possible financial misconduct in the top ranks of China’s “bad debt” asset management companies, as concerns rise over their high debt levels and falling profits.

The groups, which include Huarong Asset Management and China Cinda Asset Management, have been under intensifying scrutiny by regulators and investors as Beijing grapples with risky elements in the country’s financial system, which it believes threaten economic stability.

The CBIRC’s statement referred to Hu’s previous role as vice-president of China Orient Asset Management, another large distressed debt investor, implying that the charges are related to his almost two-decade tenure at that group rather than his role at Great Wall.

China’s four big bad debt managers were established in the aftermath of the Asian financial crisis in the late 1990s. They were designed to reduce risk in the country’s biggest state-owned lenders by removing bad debts from their books ahead of stock market listings.

But the groups have become a serious problem for Beijing after they raised more than $100bn in debt, expanding aggressively into sectors beyond their remits and mushrooming into financial conglomerates.

While Huarong and Cinda are listed in Hong Kong, Great Wall and Orient have remained private. According to S&P data, all four expanded their overseas assets significantly from 2015-17. 

Huarong, China’s biggest distressed debt investor, owes about $22bn of dollar-denominated debt and is facing intense market pressure over delays in publishing its annual results. The company’s Hong Kong-listed shares were suspended in April while the prices of its bonds have been volatile.

Lai Xiaomin, the 58-year-old former head of Huarong was executed in January after being found guilty of taking bribes worth $280m and other crimes.

The crackdown is a sign of the endurance of Chinese president Xi Jinping’s years-long anti-corruption drive. The campaign has been viewed by experts outside China as a means of both targeting deeply ingrained government and corporate graft while threatening potential challengers to Xi’s power from within the Communist party.

The debt problems at the state-backed distressed loan managers have also emerged against a backdrop of rising international investor concern over a record number of defaults and a sharp increase in ratings downgrades hitting China’s financial sector. More than $100bn of dollar debt borrowed by Chinese companies is due this year.

In response, China’s finance ministry is considering transferring the state’s shares in the top four bad-debt groups into a new holding company as a means to further de-risk the financial system, Bloomberg News reported last month, citing unnamed sources.

Great Wall’s perpetual bonds dropped slightly on Wednesday to trade at 97.8 cents on the dollar.

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- U.K. Seeks Financial Services Exemption From G-7 Tax Plan: FT

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* PolyPeptide Analysts Start With Positive Ratings on Positioning

The FDA’s reasoning for greenlighting Biogen’s Aduhelm could bode well for other Alzheimer’s drugs targeting the disease in a similar way

The Food and Drug Administration’s approval of Biogen Inc.’s BIIB -0.12% Aduhelm on Monday may have boosted the prospects of other experimental Alzheimer’s disease drugs that target the disease in a similar way.

In greenlighting Aduhelm, the FDA endorsed a hypothesis about Alzheimer’s that not long ago was thought dead: The disease can be treated by clearing the buildup of a sticky substance in the brain known as amyloid.

Many scientists studying Alzheimer’s aren’t ready to give up on the amyloid hypothesis, but there isn’t a consensus on precisely what role amyloid plays in the disease.

In approving Aduhelm, the FDA said the drug reduced amyloid and thereby likely helps Alzheimer’s patients.

The decision was cheered by many Alzheimer’s patient groups and doctors, who have lacked good options for treatment. The move was criticized, however, by many researchers who said there wasn’t enough evidence to show the drug worked and at a $56,000 yearly list price, it will be costly.

The approval could pave the way for FDA approving other Alzheimer’s drugs that reduce amyloid buildup, including therapies being studied by Eli Lilly & Co. and Roche Holding AG , analysts say.

Shares in Lilly, which recently released promising results for its drug donanemab in a Phase 2 study, rose 10.2% on Monday. Roche shares gained 2.4% on Monday.

The FDA “made the unproven assertion that removing amyloid from the brain is enough to benefit Alzheimer’s patients, and with that understanding, other drugs that remove the plaque should be able to get approved,” says Ronny Gal, a Bernstein pharmaceuticals analyst.

The FDA cleared Aduhelm under its accelerated approval pathway, which allows for drugs to be brought on the market before definitively showing they result in clinical benefit for patients.

The pathway is most commonly used for cancer drugs, such as Amgen Inc.’s lung-cancer treatment Lumakras, which the FDA cleared late last month based on the therapy’s ability to shrink tumors.

The FDA’s acceptance that clearing amyloid is likely to confer benefit to patients could bode well for other treatments aimed at different targets linked to the disease, including the tangled strands of a protein called tau, according to analysts and Alzheimer’s researchers.

“It hearkens good things for the Alzheimer’s field, and not just for amyloid targeted treatments but also tau,” says Maria Carrillo, chief science officer at the Alzheimer’s Association.

Critics of the FDA’s decision say it sends a bad message to drug developers that they can use subpar clinical-trial data to gain regulatory approval.

The agency approved Aduhelm based on clinical trials that Biogen halted early after determining they were unlikely to be successful. The company later analyzed additional data from the studies to seek approval.

“The accelerated approval pathway is not intended for drugs with weaker evidence. You’re still supposed to have high-quality, rigorous trials,” says Aaron Kesselheim, professor of medicine at Harvard Medical School and a member of an FDA advisory committee that rejected endorsing Aduhelm last year. “In this case, the trials were stopped early and not completed,” and Biogen later found signs the drug worked, he said.

The FDA’s advisory committee wasn’t asked to consider whether reducing amyloid is likely to confer clinical benefits to patients, a hypothesis that is still debated because of the large number of amyloid-targeted drugs that have failed in the past, says Dr. Kesselheim.

“There is no good evidence that reducing amyloid leads to meaningful changes in the clinical course of disease,” says Dr. Kesselheim.

Some biotech analysts caution that the FDA’s flexibility toward Aduhelm may not extend to other amyloid-targeted treatments, particularly those that haven’t been proven to be as potent at clearing amyloid from the brain.

“Wall Street is very surprised and, I think, shocked by the approval, but they are not fully convinced just yet that the FDA is open to widely approving lots of Alzheimer’s drugs,” says Michael Yee, a Jefferies biotech analyst. “This is the first step to moving the bar but every company needs to have a large set of data to convince the FDA of clinical efficacy.”

Aduhelm’s approval is likely to spur further investment into Alzheimer’s drugs, says Alfred Sandrock, Biogen’s executive vice president for research and development.

“This will be a catalyst for not only other amyloid targeting drugs, but other ways of innovating in Alzheimer’s disease in general,” says Dr. Sandrock. Early multiple-sclerosis drug “beta interferon was approved in 1993 under accelerated approval, and we now have more than 20 drugs approved for MS just in the last 25 years. So it’s happened before, and I think it’ll happen again,” he said.

An FDA spokeswoman said the agency “stands ready to work with research communities and drug developers to study more therapies for Alzheimer’s disease and other neurodegenerative disorders.”

White House describes disclosure as ‘illegal’ while calling on wealthy to pay ‘fair share’

US tax authorities have launched an investigation into a leak of private records of billionaires including Warren Buffett, Jeff Bezos, Mike Bloomberg and Elon Musk that showed many of them have paid little tax even as their wealth ballooned.

ProPublica published details of what it called “a vast trove of Internal Revenue Service data” covering more than 15 years of tax returns from thousands of the wealthiest Americans. The non-profit investigative journalism outlet did not disclose the source of the leak. 

Its report concluded that legal tax-avoidance strategies had allowed the 25 richest Americans to pay just $13.6bn in federal income taxes in the five years to 2018, even as the rising value of their stocks, properties and other assets had inflated their collective wealth by an estimated $401bn. 

Charles Rettig, the IRS commissioner, told a Senate finance committee hearing that the agency had opened an investigation to uncover the source of the leak. He said he shared “the concerns of every American” that sensitive confidential information had been disclosed. 

Jen Psaki, the White House press secretary, said “any unauthorised disclosure of confidential government information by a person with access” was “illegal” and taken “very seriously”. She pointed to the IRS’s referral of the leak to the Treasury department’s inspector general for tax administration, the FBI, and the US attorney’s office for the District of Columbia.

However, Psaki also said the leak highlighted that “there is more to be done to ensure that corporations and individuals” were paying “more of their fair share” in taxes as proposed by President Joe Biden.

Bloomberg, the former New York mayor and US presidential candidate, pledged to use “all legal means” to uncover the source of the leak. The founder of the eponymous financial information group pushed back at the article’s premise, saying that he “scrupulously obeys the letter and spirit of the law” and distributes about three-quarters of his annual income in taxes and charitable giving. 

“The release of a private citizen’s tax returns should raise real privacy concerns regardless of political affiliation or views on tax policy,” he said in a statement. “We intend to use all legal means at our disposal to determine which individual or government entity leaked these and ensure that they are held responsible.”

Eric Hylton, who spent 30 years with the IRS before retiring as head of the small business division in March, said he found it hard to believe that one of the service’s 83,000 employees had provided the data, noting that any such leak would be treated as a felony. “I have not seen a leak such as this in my entire career,” he said.

The IRS already placed “a high priority” on examining the tax affairs of billionaires, Hylton said, but a decade of budget cuts had affected its enforcement capacity. Biden has asked Congress to increase the IRS budget by $80bn to enhance enforcement.

The leak comes as some Democrats are advocating a tax on the richest Americans’ total wealth, rather than focusing on annual incomes, which can be offset by deductions, borrowing and investment losses. 

Elizabeth Warren, the US senator from Massachusetts, introduced legislation this spring to apply a 2 per cent tax on individuals with a net worth above $50m, with a further 1 per cent surcharge imposed on any wealth above $1bn. President Joe Biden has proposed increases in the tax rate on capital gains and dividends for those earning more than $1m but has not backed the wealth tax.

Warren seized on the ProPublica report, writing on Twitter that it showed that it was time “to make the ultra-rich finally pay their fair share”.

Morris Pearl, chair of a group of wealthy campaigners for higher taxes on the rich called the Patriotic Millionaires, said the report bolstered its argument that the very richest Americans “can basically choose whether to pay taxes or not”. 

The wealth taxes and higher taxes on unrealised capital gains for which his group advocated were “fringe ideas” when it launched in 2010, he said, but sentiment had shifted and ProPublica’s disclosures could boost support further. 

Bloomberg and Buffett have been among the billionaires calling for higher taxes on the wealthiest Americans for several years, but the economic divides exposed by the pandemic have raised the political stakes. 

ProPublica said it had decided to reveal the details “because it is only by seeing specifics that the public can understand the realities of the country’s tax system”.

Ron Wyden, a Democrat from Oregon who chairs the Senate finance committee, said ProPublica’s report had shown that “the country’s wealthiest, who profited immensely during the pandemic, have not been paying their fair share”. 

Gridserve purchase from green energy group Ecotricity set to trigger tens of millions in infrastructure investment

The company that operates Britain’s electric vehicle motorway charging network is being bought by a business funded by Hitachi in a move expected to lead to tens of millions of pounds in investment across its sites.

Gridserve, which is backed by the Japanese conglomerate and took a 25 per cent stake in the Electric Highway in March, is understood to be buying the remainder of the business from Ecotricity, a green energy group.

Dale Vince, Ecotricity’s owner, who has run the Electric Highway network since installing the first charging points in 2011, will use the proceeds to invest in other green technologies such as making natural gas from grass.

Despite being the first motorway charging network in the UK, Electric Highway has been roundly criticised by the industry and rival operators for putting consumers off buying electric vehicles because of under-investment in recent years.

Gridserve is understood to be paying tens of millions of pounds for the remaining stake in the Electric Highway business, which is separate to the amount it is expected to invest in the sites in future.

The state of the network, which has deals with all three major UK service area operators, was part of the subject of a wider competition probe earlier this year.

Increasing the number and speed of charging points at motorways is key to increasing confidence in the ability of motorists to drive distances beyond the reach of EV batteries, which can typically last for up to 300 miles.

The government wants at least six superfast charging points at each service area by 2023 to ease consumers into battery vehicles, as part of its aim to phase out the sale of any non-electric models by 2035.

Transport minister Rachel Maclean told an FT summit earlier this year that “we do need to do a lot more on the infrastructure side of things”, saying the chief complaint she hears is about the reliability of the charging network.

She added: “We want people to be able to undertake those longer journeys, and more importantly, to have an electric vehicle as their main car.”

Speaking on Tuesday, Vince said Electric Highway “needs an owner with access to serious funding and real commitment to the cause” to help fund a “growth spurt” required to keep pace with demand and meet the new regulations.

He told the FT that the network needs “tens of millions” of pounds spent to bring it up to current standards.

“Electric car take-up has been beyond our wildest dreams when we started 10 years ago,” he said. But now Ecotricity “wants to get out of things we feel we don’t need to be in any more, and wants to get into things at the cutting-edge”.

Projects Ecotricity will fund with the money from the sale include ramping up manufacturing of diamonds made from captured carbon in the air, and expanding a vegan burger kitchen.

Toddington Harper, chief executive of Gridserve, said: “The upgraded network will provide the confidence for millions more to make the successful transition to electric vehicles in the earliest possible timeframe.”