JP Morgan on Monday named Frank FX Gong Chairman of Investment Banking in China after its most senior investment banker in the country, Fang Fang, retired after 12 years with the firm, according to an internal email seen by FinanceAsia.
The management reorganisation is taking place just as the US Securities and Exchange Commission investigates whether JP Morgan breached the Foreign Corrupt Practices Act by hiring the children of Chinese government officials in order to win investment banking contracts.
JP Morgan has handed the SEC emails sent by Fang and related to the firm’s hires in China as part of a massive data dump in response to a subpoena, according to a person familiar with the matter.
JP Morgan has also stepped away from two initial public offerings in the wake of the investigation, including China Everbright Bank’s listing in Hong Kong last year and Tianhe Chemicals’ planned US$1 billion IPO later this year. In both cases JP Morgan employed staff related to the companies’ management, the person familiar with the matter said.
A spokeswoman for the bank declined to comment aside from saying that JP Morgan was cooperating with regulators.
In addition to Gong, the US bank named Brian Gu and Jing Zhao co-heads of investment banking in China, the email showed.
Gong, Gu and Zhao will all report to the US bank's co-head of banking Asia Pacific, Therese Esperdy, who notified staff of the changes in the email Monday.
The management reshuffle came after Fang Fang informed the bank of his decision to retire, Esperdy said in the note. It is not clear what drove his decision but one person familiar with his thinking said it was for personal reasons.
The SEC has been requesting documents from JP Morgan since at least May as it investigates the bank’s hires among the scions of China’s political and business elite.
In a country where personal relationships, or guanxi, play an important role in business and the Communist Party is omnipresent, other banks have also hired these so-called princelings.
Janice Hu, whose grandfather is Hu Yaobang, a former Communist Party General Secretary, works with Credit Suisse; Margaret Ren, whose father-in-law is Zhao Ziyang, a former premier and former General Secretary of the Party, works with Bank of America Merrill Lynch; while Jia Liqing, whose father-in-law is Liu Yunshan, the First Secretary of the Central Secretariat of the Party, works with BofA Merrill Lynch.
Such hiring practises are not limited to China of course. Bill Clinton’s daughter and the son of Mongolia’s premier have worked, or are still working, for international investment banks.
If banks hire people qualified for the job at hand they are not in violation of the law, whatever their political connections. However, hiring crosses the line if there is a reciprocal arrangement whereby the bank gains preferential treatment in return for employing the family of government officials.
The new lineup
Gong was most recently JP Morgan’s Vice-Chairman of China Investment Banking. He was previously Chairman of China Diversified Industry Clients.
Gu was formerly Vice-Chairman of China Investment Banking, overseeing the firm’s investment banking transactions in the Greater China region. Gu joined JP Morgan in 2004 from Lehman Brothers, while Gong moved over to the firm's China investment banking group in 2009 after leading its China research franchise for five years. He joined JP Morgan in 2004 as a managing director. Other roles have included economist at the Federal Reserve Bank of New York between 1995 and 1997.
Zhao is a relatively new banker at JP Morgan, arriving in 2012 from Citi. Zhao will maintain her position as head of JP Morgan’s Financial Institutions Group for Emerging Asia as she transitions into her new role.
A China investment banker
Fang, in his late forties, had been Vice Chairman of Asia Investment Banking since November 2009. Fang is based in Hong Kong but travels frequently around China. His role is largely managerial but also involves bringing in investment banking clients. Under Fang's stewardship JP Morgan had the second-best year ever last year in terms of revenues in China, Esperdy said.
"During his time with JP Morgan, the firm has become one of the most influential investment banks in China," Esperdy said in the emailed memo.
Fang joined JP Morgan in August 2001 as an investment banker in Hong Kong. He was promoted to Managing Director in 2003 and was appointed co-head of China Investment Banking in 2005 and Chief Executive of JP Morgan China in early 2007. Fang started his career in 1993 with Merrill Lynch as an investment-banking associate in New York and subsequently transferred to its Hong Kong office.
Fang has a wide network of connections across China. He was a Vice President at state-controlled Beijing Enterprises Holdings before becoming an investment banker. In March 2008 Fang was appointed a member of the political advisory body, the Chinese People’s Political Consultative Conference.