Office Of Outgoing JPMorgan Asia CEO Raided By Hong Kong's Commission Against Corruption
Submitted by Tyler Durden on 03/30/2014 07:42 -0400
It just hasn't been JPMorgan's year. Or several years for that matter. The bank which has been on a steady downward slope when it comes to paying billions in quarterly "non-recurring, one-time" legal settlements and charges, and for which engaging in criminal behavior which is neither admitted nor denied, yet which has cost JPM nearly $30 billion in the past several years, has just had its latest "wrist slapping" incident, one which involves none other than the recently departed CEO of JPM Asia, Fang Fang, whose office was raided on March 26 by Hong Kong's anti-corruption agency amid a U.S. investigation into the bank’s hiring practices as reported by Bloomberg.
The Independent Commission Against Corruption seized computer records and documents after searching the office of Fang Fang, the company’s outgoing chief executive officer for China investment banking, said the people, who asked not to be identified because the investigation is confidential.“We will not comment on individual cases,” Alan Tse, an ICAC spokesman, said by phone yesterday. Marie Cheung, a Hong Kong spokeswoman for JPMorgan, declined to comment on the ICAC search.The New York-based bank announced Fang’s resignation March 24. His departure comes amid an investigation into JPMorgan (JPM)’s Asian hiring practices. U.S. authorities are examining whether the bank employed people in Asia so that their relatives in government would steer business to the bank, people with knowledge of the probes have said.The banker joined JPMorgan in August 2001 and became head of the firm’s China investment-banking unit in 2007 and was made vice chairman for Asia investment banking in 2009. Prior to joining the bank, Fang worked as a vice president of Beijing Enterprises Holdings Ltd., an investment company controlled by the Beijing government....JPMorgan, the world’s biggest investment bank by fees last year, said in August that the U.S.’s Securities and Exchange Commission had sought information on its employment practices and client relationships in Hong Kong. U.S. prosecutors were given e-mails written by Fang in which the banker supported the hiring of China Everbright Group Chairman Tang Shuangning’s son, the Wall Street Journal reported March 24. Those e-mails also highlighted the potential for doing business with China’s state-backed conglomerate while Fang hasn’t been accused of any wrongdoing, the paper said.The probes have posed hurdles to JPMorgan’s involvement in at least two recent investment-banking transactions. The bank decided to quit China Everbright Bank Co.’s Hong Kong share sale in November because the investigation delayed an internal approval process, according to two people with knowledge of the matter. The $3 billion deal was the largest first-time offering by any company in Hong Kong last year.
If indeed as Bloomberg suggest the investigation was driven by US authorities, it would imply that the US is getting even more aggressive in its pursuit of high-level JPM employees only not so much in the US, but increasingly in that gold mine for banking, China, and specifically Hong Kong, where we remind readers, a month ago a JPM FX trader jumped to his death.
Which means only one thing: even more billions in "one-time, non-recurring" fines are coming.
As for Fang: "Fang quit the bank as he wants to spend more time with his family, a person with knowledge of the matter said earlier." Depending on how strong of a message Obama's political circle wants to send Jamie Dimon, Fang may soon be out of luck with the whole "spending time with the family" plan.
Up to RMB5tn of loans to become due for repayment this year
China will see between 4 trillion and 5 trillion yuan (US$645 billion-$805 billion) worth of trust products coming due this year, and nearly 300 billion yuan (US$48.3 billion) of corporate bonds facing repayment, raising the curtain for possible defaults in the financial market, Beijing's Economic Information Daily reports.
The second and third quarters will be the peak period for repayment, puttin pressure on the property, coal and steel industries especially. Slowing investment growth is the result of China's government adjusting the country's economic structure, and while there will be a certain degree of tolerance over potential defaults, caution will be needed to prevent a negative chain reaction in the system, including corporate guarantee risks and high-interest-rate risks, experts said.
Out of the total trust products, 51.77% belong to the property, 26.74% are related to infrastructure projects and 17.97% are held by businesses.
The trust industry is seen to have liquidity risks, with funding shortage reaching as much as 115.6 billion yuan (US$18.62 billion), according to a report by the Shanghai Advanced Institute of Finance (SAIF) at Shanghai Jiaotong University.
In 2014, 1,706 corporate bonds will create cash flows totaling 277.1 billion yuan (US$44.65 billion).
The National Development and Reform Commission, China's chief economic planning agency, said 2014 will see the payment peak for due corporate bonds, also expecting municipal investment bonds to become due to the tune of around 100 billion yuan (US$16.11 billion) this year.
The State Council, China's cabinet, has identified five industries as being weakened by overcapacity, with many steel, shipbuilding, cement and plate glass companies concentrated in Jiangsu province, thus giving certain pressure on financial institutions in the eastern coastal province, experts said.
As many enterprises have faced low profit returns with high liabilities as the nature of China's economic structure changes, most financial institutions have become cautious when it comes to offering loans to traditional industries, fearing a rising rate of non-performing loans.
JPMorgan Chase in a recent report said it expects China's fixed asset investment growth to slow to 18.6% in 2014 from 19.6% in 2013 due to slowing investment in manufacturing, infrastructure and property on the back of overcapacity, limited financing power from local governments, slowing growth in property prices and tightening financing.
Five industries — steel, cement, aluminum, plate glass and shipbuilding — are facing overcapacity problems with total debts of about 7.7 trillion yuan (US$1.24 trillion), expected to possibly create combined non-performing loans of about 570 billion yuan (US$91.8 billion), the report said, citing estimates by an unnamed institution.
Regulators cutting off excess producers from loans in key industries
China Banking Regulatory Commission has issued a notice to local banks to stop loaning to certain industries, now that they have produced more than what is needed, our Chinese-language sister newspaper Commercial Times reports.
These industries include steel, cement, chrome, flat glass, electrolytic aluminum and shipbuilding.
The commission said that the cement industry had the lowest capacity utilization rate, which was 71.9% at the end of 2012. The rate for steel was 72%, while that for the glass industry was 73.1%. The Chinese government regards a capacity utilization rate of 70% to 75% as a sign of "medium-level" excess capacity in manufacturing.
The commission's decision referred to the dropping performance in these industries, having produced more than what is needed for market demand. The commission requested local banks to investigate potential risks for new applicants. Applications from companies that belong to the "industries on the blacklist" who do not possess authorization by the government will be banned.
The commission requested local banks to carry out a credit investigation toward future loan applicants. Credit standards should consider environmental responsibility and social management, including a carbon emissions and production safety index, the commission said. Those who fail the investigation will not be able to receive grants for trust funds, mortgages, or equity financing.
Property firms increase bank investments over liquidity concerns in China
More Chinese property companies have been investing in banks since late last year, with more than 30 property firms getting involved in the banking industry including China Vanke and Evergrande Group, due to their concerns over liquidity risks, the Shenzhen-based Securities Times reports.
The future of property firms in China depends on their profitability and cash flow.
Since the end of last year, more than 30 property firms have invested in or made agreements with banks, including Vanke's participation in Huishang Bank's public listing and Evergrande's investment in Hua Xia Bank.
By teaming up with banks, these companies can obtain loans through bank's wealth management products, avoiding regulatory risks.
The property sector is a capital-intensive industry, with firms typically needing to raise funds through liability operations, but they can be relieved from liability if they have strong sales.
Beijing Beta Consulting Center partner Du Lihong is pessimistic about the nation's property industry, seeing rising risks in the mid-term, though no serious one-year short-term risks.
Du sees the biggest risk for property firms not on credit risks, nor on possible property price collapses, but on liquidity risks.
The investments in banks by Vanke and Evergrande clearly are clearly aimed at obtaining long-term funding from banks. In 2010, Vanke's bank loans accounted for 67.3% of its long-term borrowing. The ratio fell to 42.8% in 2012, but rebounded to 66.4% in 2013.
While Evergrande's bank loans accounted for 100% of its long-term borrowing when it first went public in 2009, with the ratio falling to 52.3% in 2011 and remaining at 52.6% in 2012.
Banks not only offer development loans for property companies, give convenience for their short-term financing, but also provide mortgages for property buyers. Without the support of banks, any property firm would find expansion difficult, insiders said.