JPMorgan Banking Exec Retires Amid Ongoing Hiring Practices Inquiry
Amid a United States government-led investigation into the banking hiring practices in Asia, Chief Executive Officer Fang Fang of JPMorgan Chase’s (NYSE:JPM) investment banking unit in China has ended his twelve-year tenure. As Bloomberg learned through sources familiar with the matter, Fang submitted his resignation last week because he wanted to spend more time with his family. “Fang Fang has informed us of his desire to retire,” Therese Esperdy, co-head of Asia-Pacific corporate and investment banking, said in an internal banking memo circulated on Monday. “The decision was made by him,” The Wall Street Journal reported. Yet, the 48-year-old banking executive has become a key figure as U.S. officials examine whether JPMorgan or any of its employees violated the Foreign Corrupt Practices Act, sources told the Journal.
The timing of the 48-year-old banking executive’s retirement coincided with the bank’s release of a series of emails in which Fang discussed the hiring son of China Everbright Group (CEVIY.PK) Chair Tang Shuangning, as the publication learned through individuals familiar with the inquiry. Both the Federal Bureau of Investigation and Prosecutors from the Department of Justice want to uncover whether the son’s employment with JPMorgan helped the bank win important contracts from the company. JPMorgan — the world’s largest investment bank by fees — revealed in August that the Securities and Exchange Commission had requested information on the so-called “Sons and Daughters” hiring program, including the employment of certain individuals in Hong Kong as well as particular client relationships, but the bank has not been charged with any wrongdoing. Still, JPMorgan is the central institution in the federal investigation into international hiring practices.
Descendents of prominent and influential senior communist officials — known as Chinese Princelings — have significant political clout, meaning the ability to make business dealings run more smoothly for foreign companies in China, a country where cultural misunderstandings and bureaucratic red tape can make business difficult. Regulators have long believed that the banking industry has made use of the scions of politically well-connected families, and the SEC and the Department of Justice have questioned officials to determine whether any financial institution acted with “corrupt” intent or with the expectation of receiving government business in exchange for a job. Under the 1977 Foreign Corrupt Practices Act, a company is prohibited from giving a personal benefit or “anything of value,” meaning a bribe, to a decision maker in return for “an improper advantage” in securing or retaining business. All this is to say banks can hire the family and friends of Chinese officials so long as the bank did not explicitly trade job offers for business deals.
To prove a violation of the Foreign Corrupt Practices Act, federal investigators must prove that the recruitment of an employee was linked to the awarding of a new contract or, more broadly, the generating of higher revenue. Fang’s emails not only discuss the hiring of Tang Shuangning’s son but point to the benefits of hiring the sons and daughters of the country’s political elite. “You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship” with winning contracts to advise Chinese companies, he wrote in one of the emails. Government officials have yet to comment on how those emails will guide the investigation.
But it is clear that the government inquiries have derailed JPMorgan’s involvement in two recent investment banking transactions; the bank passed up the initial public offering of Tianhe Chemicals Group as questions arose over the bank’s previous employment of the daughter of the company’s chair, as Bloomberg learned through sources familiar with the transaction. Since the investigation delayed JPMorgan’s internal approval process, the bank also exited China Everbright Bank’s Hong Kong share sale last November — a $3-billion deal that was the largest first-time offering of any company in Hong Kong.
Confidential government documents obtained by The New York Times last November detailed the hiring of Tang Xiaoning, the son of Tang Shuangning, a former banking regulator who is now the chair of the state-controlled financial institution, China Everbright Group. Authorities have attempted to determine whether JPMorgan secured lucrative business from the company and its banking subsidiary. What is known is that his hiring “came at an opportune time” for JPMorgan, according to the documents. Previously, the bank had conducted little business with China Everbright, but after Tang was hired, business picked up, and the institution became one of JPMorgan’s best Asian clients.
As a key deal-maker, fluent as an economist, and foreign-exchange strategist, Fang will be missed at JPMorgan. Under his leadership, JPMorgan increasingly secured bigger deals and moved higher in deal rankings, a closely watched measure of investment bank success. During his career at JPMorgan, Fang also was a representative on the Chinese People’s Political Consultative Conference, which is a largely symbolic political advisory body populated by the rich and powerful of China; membership in the organization grants access to the country’s important business and political leaders.
According to an internal memo obtained Monday by Bloomberg News, the departure of Fang sparked a rearrangement of the bank’s senior leadership in China; Frank Gong — who arrived at the bank in 2001 after working for the Federal Reserve Bank of New York between 1995 and 1997, will become chair of investment banking for China. While a relatively unknown executive in the United States, over the past decade Gong has been a prominent government adviser and an influential member of the JPMorgan team that bid for important investment-banking contracts. The departure of Fang focuses the attention on Gong and on Brian Gu and Jing Zhao, who were named as co-heads of investment banking for China.
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