By BEN PROTESS and JESSICA SILVER-GREENBERG
In a series of late-night emails, JPMorgan Chase executives in Hong Kong lamented the loss of a lucrative assignment.
“We lost a deal to DB today because they got chairman’s daughter work for them this summer,” one JPMorgan investment banking executive remarked to colleagues, using the initials for Deutsche Bank.
The loss of that business in 2009, coming after rival banks landed a string of other deals, stung the JPMorgan executives. For Wall Street banks enduring slowdowns in the wake of the financial crisis, China was the last great gold rush. As its economy boomed, China’s state-owned enterprises were using banks to raise billions of dollars in stock and debt offerings — yet JPMorgan was falling further behind in capturing that business.
The solution, the executives decided over email, was to embrace the strategy that seemed to work so well for rivals: hire the children of China’s ruling elite.
“I am supportive to have our own” hiring strategy, a JPMorgan executive wrote in the 2009 email exchange.
In the months and years that followed, emails and other confidential documents show, JPMorgan escalated what it called its “Sons and Daughters” hiring program, adding scores of well-connected employees and tracking how those hires translated into business deals with the Chinese government. The previously unreported emails and documents — copies of which were reviewed by The New York Times — offer a view into JPMorgan’s motivations for ramping up the hiring program, suggesting that competitive pressures drove many of the bank’s decisions that are now under federal investigation.
The references to other banks in the emails also paint for the first time a broad picture of questionable hiring practices by other Wall Street banks doing business in China — some of them hiring the same employees with family connections. Since opening a bribery investigation into JPMorgan this spring, the authorities have expanded the inquiry to include hiring at other big banks. Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley have previously been identified as coming under scrutiny. A sixth bank, UBS, is also facing 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 have put Wall Street on high alert, said the current and former employees, who were not authorized to speak publicly. Some banks, they said, have adopted an unofficial hiring freeze for well-connected job candidates in China.
The investigation has also had a chilling effect on JPMorgan’s deal-making in China, interviews show. The bank, seeking to build good will with federal authorities, has considered forgoing certain deals in China and abandoned one assignment altogether.
The pullback comes just as JPMorgan had regained a significant share of the Chinese market. Its deal-making revived a few years after it escalated the Sons and Daughters program in 2009, an analysis of data from Thomson Reuters shows. In 2009, JPMorgan was 13th among banks winning business in China and Hong Kong. By 2013, once other banks had scaled back their Chinese business, it had climbed to No. 3. Other data shows that the bank was eighth in 2009 and — after losing market share in 2011 and 2012 — is now No. 4 in deal-making. While the hiring boom coincided with the increased business, the data does not establish a causal link between the two.
Yet the Securities and Exchange Commission and federal prosecutors in Brooklyn, which are leading the JPMorgan inquiry, are examining whether the bank improperly won some of those deals by trading job offers for business with state-owned Chinese companies. The S.E.C. and the prosecutors, which might ultimately conclude that none of the hiring crossed a legal line, did not comment.
JPMorgan, which is cooperating with the investigation, also declined to comment. There is no indication that executives at the bank’s headquarters in New York were aware of the hiring practices. The six other banks facing scrutiny from the S.E.C. 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 coincided with a roaring economy in China, enabling questionable hiring practices to escape government scrutiny. The hiring became so widespread over the last two decades that banks competed over the most politically connected recent college graduates, known in China as princelings.
Goldman’s employee roster briefly included the grandson of the former Chinese president Jiang Zemin. And Feng Shaodong, the son-in-law of a high-ranking Communist Party official, worked with Merrill Lynch.
In recent months, though, federal authorities have adopted a tougher stance toward Wall Street firms suspected of trading jobs for government business. The S.E.C. and the Brooklyn prosecutors have bolstered enforcement of the Foreign Corrupt Practices Act, which effectively bans United States corporations from giving “anything of value” to foreign officials to gain “any improper advantage” in retaining business. JPMorgan would have violated the 1977 law if it had acted with “corrupt” intent.
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