Seeking Alpha
, Google+ (259 clicks)
Long/short equity, special situations, momentum, event-driven
Profile| Send Message|
( followers)  

Summary

  • Mr. Fang, JPMorgan's top investment banking executive in China, announced his retirement amid allegations of the bank's violation of the Foreign Corrupt Practices Act.
  • Regulators are investigating whether Mr. Fang was involved in the hiring of the son of the China Everbright Group Chairman, with whom JPMorgan hoped to curry favor.
  • Following this "retirement" and other recent scandals, we suggest investors take some profits in JPMorgan in 2014.

In another surprising turn of events at JPMorgan Chase (NYSE:JPM), Fang Fang, the bank's top China investment banking executive, is expected to resign. The event is suspicious, because it is happening in the midst of probes by U.S. regulators about the bank's hiring practices in Asia.

As a chief executive, Mr. Fang has established a long, distinguished record at the company over more than a decade. He has served as chief executive for China investment banking, as well as vice chairman of investment banking for Asia. Now, at the peak of his long climb to success in his career, when he would be expected to enjoy the fruits of his years of experience, he has suddenly decided to retire.

While the bank is announcing his quick retirement as a personal decision, the move comes at a time when U.S. investigators have identified him as a key figure in an investigation into the bank's possible violation of the Foreign Corrupt Practices Act. The law was enacted in 1977 to prevent U.S. companies doing business overseas from giving money or valuable favors to foreign officials to gain a business advantage.

See our previous article on JPMorgan's dropping out of a prominent IPO to avoid the same violation earlier this year.

U.S. Prosecutors Question Motives for Hiring Tang Shuangning's Son

Currently, U.S prosecutors are going over emails, provided by JPMorgan, from Mr. Fang. These emails discuss hiring the son of Tang Shuangning, the China Everbright Group Chairman. Both the prosecutors and the FBI want to know, on behalf of the Justice Department, whether the son's hire at the bank influenced the bank's relationship with the China Everbright Group; specifically, if it helped win assignments for JPMorgan.

No accusations of wrongdoing have been made, and neither Mr. Fang nor Mr. Tang and his son have been targeted for FCPA violations. For this to occur, the investigations have to show a clear correlation between the new employee and the bank getting a new contract or the back generating increased revenue.

A Key Player between Wall Street and Communist China

As an executive, Mr. Fang was not well-known in the U.S. However, as a Chinese citizen working for a prominent U.S. bank in a high executive position, he has played a role as an important government adviser. Mr. Fang comes from Anhui province, southeastern China. After studying engineering at Tsinghua University, Beijing, he attended Vanderbilt University in 1993 where he earned a business degree. He joined JPMorgan in 2001 and ascended the league tables of deal rankings-a scorecard used by investment bankers.

While still working for the bank, he became a representative of the Chinese People's Political Consultative Conference. Membership in this group allowed him to rub shoulders with China's political leaders and top businessmen. Only recently, he was appointed to a new term, one that would last for five years. In this position, Mr. Fang was able to advise the junior resource manager of the bank on the best picks for the hiring program, unofficially deemed "the sons and daughters program" as it involved hiring the children of China's top political and business leaders.

Prior to joining the bank, Mr. Fang established a reputation as a bridge builder between U.S. banks and financial institutions and Communist China. He joined Merrill Lynch, New York, in 1993. During this time, Merrill Lynch secured profitable deals with the Chinese government. Then, later, at yet another Wall Street firm, he helped prominent Chinese companies get listed in the Hong Kong stock exchange.

What Should JPM Shareholders Consider Doing?

As we noted in our previous article, we believe JPMorgan's problems, ranging from headline-grabbing allegations of violating the Foreign Corrupt Practices Act to domestic scandals, will continue in 2014. We reiterate our stance that JPM shareholders should continue taking some profits now in this mega bank.

Source: Dimon's Fang Fang Surreptitiously Retires; JPMorgan Again In Possible Violation Of FCPA