In a series of late-night emails, JPMorgan Chase Hong Kong leaders lamented the loss of a lucrative posting.
“We lost a deal with DB today because they found work for the president’s daughter this summer,” a JPMorgan investment bank official remarked to colleagues, using the initials of German Bank.
The loss of that business in 2009, after rival banks landed a series of other deals, stung JPMorgan executives. For Wall Street banks that suffered downturns in the wake of the financial crisis, China was the last big gold rush. As its economy boomed, China’s state-owned companies used banks to raise billions of dollars in equity and debt offerings — but JPMorgan was falling further behind in capturing that activity.
The solution, the leaders decided over email, was to adopt the strategy that seemed to work so well for rivals: hire the children of China’s ruling elite.
“I support the idea of having our own hiring strategy,” a JPMorgan executive wrote in the 2009 email exchange.
In the months and years that followed, as emails and other confidential documents show, JPMorgan escalated what it called its “Sons and Daughters” hiring program, adding dozens of well-connected employees and track how those hires translated into business deals with the Chinese government. Previously unreported emails and documents – copies of which have been reviewed by The New York Times – offer insight into JPMorgan’s motivations for accelerating the hiring program, suggesting competitive pressures drove many of the bank’s decisions which are currently the subject of a federal investigation.
The references to other banks in the emails also paint a broad picture for the first time of the questionable hiring practices of other Wall Street banks doing business in China – some of them hiring the same employees with family ties. Because open a corruption investigation in JPMorgan this spring, authorities expanded the investigation to include hiring at other major banks. Citigroup,
Swiss credit, German Bank, Goldman Sachs and Morgan Stanley have already been identified as under scrutiny. A sixth bank, UBS, is also under scrutiny, according to interviews with current and former Wall Street employees. Neither JPMorgan nor any of the other banks have been accused of wrongdoing.
Still, the investigations put Wall Street on high alert, said current and former employees, who were not authorized to speak publicly. Some banks, they said, have enacted an unofficial hiring freeze for well-connected job applicants in China.
The investigation also had a chilling effect on JPMorgan’s dealings in China, according to interviews. The bank, seeking to establish good relations with federal authorities, considered forgoing some transactions in China and abandoned an assignment altogether.
The pullback comes just as JPMorgan had regained a significant share of the Chinese market. His transactions resumed a few years after he stepped up the Sons and Daughters program in 2009, an analysis of data from
Thomson Reuters shows. In 2009, JPMorgan was ranked 13th among winning banks in China and Hong Kong. By 2013, once other banks had reduced their activities in China, they had fallen to No. 3. Other data shows that the bank was eighth in 2009 and – after losing market share in 2011 and 2012 – is now #4 in transactions. manufacturing. Although the hiring boom coincided with the increase in business, the data does not establish a causal link between the two.
Yet the Security and Exchange Commission and federal prosecutors in Brooklyn, who are leading the JPMorgan investigation, are investigating whether the bank improperly won some of those deals by swapping job offers for Chinese state-owned companies. The SEC and prosecutors, who may ultimately conclude that none of the hires crossed a legal line, had no comment.
JPMorgan, which is cooperating with the investigation, also declined to comment. There is no evidence that executives at the bank’s New York headquarters were aware of the hiring practices. The other six banks under scrutiny by the SEC declined to comment on the investigations, which are at an early stage.
Economic forces fueled the hiring boom by Wall Street banks.
An era of financial deregulation in Washington has coincided with a booming economy in China, allowing questionable hiring practices to escape government scrutiny. Hiring has become so widespread over the past two decades that banks have been competing for the most politically connected recent college graduates, known in China as princes.
In recent months, however, federal authorities have taken a tougher stance on Wall Street firms suspected of swapping jobs for government companies. The SEC and Brooklyn prosecutors have stepped up enforcement of the Foreign Corrupt Practices Act, which effectively prohibits U.S. corporations from giving “anything of value” to foreign officials to obtain “any advantage undue” by withholding business. JPMorgan would have violated the 1977 law if it had acted with “corrupt” intent.
While JPMorgan’s emails provided to federal authorities and reviewed by The Times most often referred to Deutsche Bank and Goldman, other banks may also have inspired JPMorgan’s hiring.
JPMorgan and Credit Suisse, for example, did business with Fullmark, a consulting firm run by the only daughter of Wen Jiabao, then Prime Minister of China. Another popular JPMorgan recruit, whose father is the chairman of a state-owned financial conglomerate, previously interned at Citigroup and Goldman.
JPMorgan executives in Hong Kong also studied hiring moves from banks more firmly established in China, according to the documents and emails. “I learned from GS,” a JPMorgan executive wrote in an email to colleagues, referring to Goldman Sachs hiring practices.
JPMorgan’s legal woes extend beyond China. In November, JPMorgan reached a $13 billion settlement with government authorities over the bank’s sale of problem mortgage-backed securities.
But unlike the mortgage pact, which focused on the bank’s activities during a financial crisis, the investigations in China target hiring practices that have lasted until this year. And while the $13 billion payment involved civil settlements with various authorities, the corruption investigation carries the threat of criminal penalties. A few senior JPMorgan executives in Hong Kong have hired criminal defense lawyers, interviews show.
The fallout from the investigation may also hamper the bank’s relationship with its customers. As the investigation intensified in recent months, JPMorgan pulled out of a deal in which it advised Cofco, a large public food company. JPMorgan offered the company chairman’s daughter a short-term internship in 2011, according to securities filings, and another internship in 2012.
“We really need her back,” a JPMorgan Hong Kong executive wrote in an email. “His dad called me and emailed me.”
The bank created the Sons and Daughters program in 2006 to ensure that hiring would comply with legal and regulatory requirements.
But then JPMorgan’s investment banking business began to lose market share in China, according to Thomson Reuters data. When JPMorgan lost the 2009 deal to Deutsche Bank, Hong Kong executives at JPMorgan’s investment bank decided it needed to ramp up its hiring.
“A missed opportunity for us this year,” an executive said in an email after learning of Deutsche Bank’s loss. “Can you design a program that might work for us? »
The investment banking unit experimented with a program that would have offered well-connected recruits a one-year contract worth $70,000 to $100,000. According to internal documents, the program could offer “a link directly attributable to a business opportunity”.
Still, some Hong Kong executives pushed for more of what they called “customer referral” hiring to keep pace with rivals.
“We do far, far, far too little of this type of hiring and I’ve been working on it with the Chinese team for a year,” a JPMorgan employee wrote to a colleague in a 2010 email. email, the employee added, “confidential, I just added the son of SinoTruk No. 2 to my team,” referring to a company that is part of a state-owned trucking company.
He added: “I have room for many more hires like this (Goldman has 25).”
JPMorgan’s expanded program got an apparent boost when Tang Xiaoning, whose father is the chairman of financial conglomerate China Everbright Group, was hired. Until that hire in 2010, which was previously reported by The Times, the bank had botched one deal after another with China Everbright, including an assignment at Morgan Stanley.
But since young Mr. Tang was hired, China Everbright and its subsidiaries have hired JPMorgan at least three times, according to Standard & Poor’s Capital IQ, a research service.
While pursuing an assignment from Taikang, a non-state-owned life insurer, JPMorgan executives made a similar connection between hiring and closing deals. Hoping to get the green light to advise Taikang on an initial public offering of shares, emails show, JPMorgan sought to hire the chairman’s niece. But he had fierce competition.
“When it comes to juicy size, every active bank in existence is trying to lobby with them,” a JPMorgan banker wrote in an email, which is unlikely to become the subject of the federal investigation, as it involves a private company. Goldman, which employed the president’s son, had a direct investment in the company. And the Royal Bank of Scotland “tried to approach” the president’s niece, wrote the banker, “to compete with us”.
David Barboza contributed reporting.